General Electric (GE), known for its healthcare, energy, and aircraft materials, among other things, serves as a major force in those industries.
Its latest move initially sent the company’s shares up substantially. Share prices jumped over 17% in premarket trading on Tuesday, before finishing the day up only 2.6%.
So, what drove GE stock upward? The fact that, by 2024, the GE you know today will be completely unrecognizable. For this reason, I’m bullish on GE right now. (See Analysts’ Top Stocks on TipRanks)
Looking at GE’s stock chart for the year so far has featured very little movement overall. A substantial upward jolt took place throughout much of January and kept going into early March. Some retracement followed, then the stock largely plateaued, holding a position between the $95 and $115 range until this very day. (See GE stock charts on TipRanks)
Meanwhile, GE’s latest move gave the stock a little extra push toward the top of that range. The company announced that it would be splitting off into three companies.
One of the companies would focus on energy, while another would focus on healthcare operations. The third will focus entirely on aviation. Reports noted that the healthcare unit will go live first, going online by early 2023. The energy unit will make its switch about a year later, starting up in early 2024. All three entities will be publicly-traded.
Benefiting from Superior Focus
This is not the first time that GE CEO Larry Culp has tried something drastic to turn GE around. In fact, Culp detailed that this planned split is a “defining moment” for GE.
Culp detailed how all the various GE teams have been working hard to improve the company’s financial position, rebuild the culture, and put the whole operation on better footing. All of that work has come together at this moment, as GE is about to split into three separate wholes.
While the move will be somewhat expensive—about $2 billion after the various one-time charges—it’s going to be a drop in the bucket. GE also announced plans to lower its debt load by over $75 billion before this year is out.
This is likely to be welcome news for investors overall. The notion of getting that much debt out of GE’s system should make GE a much better investment overall.
Plus, there’s the issue of shareholding to consider. Once GE breaks off into three firms, it’s a safe bet that shareholders in the original GE will be shareholders in the new companies as well. That suggests that those who buy in now might ultimately be on the good side of a stock split later on.
The newly-minted firms will also have the benefit of greater focus as well. Instead of being part of one larger conglomerate, the smaller firms will focus on their respective markets. That should make them more nimble and able to capitalize on market trends more effectively. That, in turn, should mean better results.
Just to round things out, the company has a reasonably solid dividend history as well. Recent years have seen the dividend cut substantially. However, there have been signs of recovery with the latest payouts.
Wall Street’s Take
Turning to Wall Street, GE has a Moderate Buy consensus rating, based on eight Buys and three Holds assigned in the past three months. The average GE price target of $129 implies 16.4% upside potential.
Analyst price targets range from a low of $114 per share to a high of $136 per share.
Concluding Views
There was always good reason to be bullish about General Electric. GE’s sheer number of operations left it insulated from all but the worst recessions.
Its plan to split up will likely prove welcome for investors as it leans up, reduces debt, and carries on boldly into the future. While it may not benefit from its sheer size much longer, it will likely benefit from a vastly improved focus.
GE is a great company by itself. Breaking it down into smaller, more agile component arms should only prove more helpful in the end, and that’s all the reason I need to be bullish on GE.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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