Buy General Electric Company (GE): The Magic of Larry Culp Is Already Showing Effects


General Electric Company (NYSE: GE) stock is finally showing signs of life. The stock surged by almost 12% after the company announced fourth quarter results that blew past the Street’s expectations.

General Electric said its revenue in the fourth quarter increased by 5.4%, amid growth in aviation, renewable energy and transportation businesses. However, adjusted earnings of 17 cents missed analysts’ estimate of 22 cents. One of the most positive news was that the company reached a $1.5 billion settlement with the Justice Department over pre-2008 financial crisis practices.

Will The New CEO Turn Things Around for GE in 2019?

2018 was disastrous for General Electric. The company’s stock got battered due to poor earnings, an SEC investigation around insurance reserves, a dividend cut, and the uncertainty following the appointment of a new CEO.

General Electric Company (NYSE: GE)’s new CEO Larry Culp told investors that a long-awaited turnaround has started. Analysts seem to be in agreement with Culp.

The Rock Star CEO

Scott Davis, CEO of Melius Research, recently said in a program that Larry Culp is a “Rock Star” and he totally believes him. He said that the prior management of GE was “deceiving” the shareholders. Davis thinks that GE will go up amid the spinoffs of healthcare and locomotive businesses. He also thinks that the Power business of the company has hit a rock bottom and it will improve in the future. The analyst has a $20 price target for GE.

General Electric Company (NYSE: GE) stock came under limelight on February 1 after CEO Larry Culp said that the company plans to sell off almost half of its health unit. This move is expected to generate cash and reduce the massive debt load of the company. During the Q4 earnings call, GE CEO said that the company now expects to monetize just about 50% of its healthcare business.

It is important to note that GE replaced John Flannery with Larry Culp as the company’s new CEO. In November, GE announced plans to sell up to 20% or about $4 billion stake in the oil-field-services provider Baker Hughes. The company’s financing arm GE Capital sold a $1.5 billion healthcare-equipment finance portfolio to TIAA Bank. The company’s digital division sold a majority stake in ServiceMax to private-equity firm Silver Lake. The Wall Street is responding positively to these radical steps by the company’s new management.

Credit Suisse’s analyst John Walsh also increased his price target for General Electric Company (NYSE: GE) stock after the earnings. The analyst said in his note that the company is on track to make “significant progress towards the 2.5x net debt/ EBITDA target for the Industrial business in 2020.”

Citi Research’s Andrew Kaplowitz, who has a “Buy” rating for GE with a price target of $15, said in a note that the Q4 results are step in a right direction. However, the analyst showed disappointment over lack of 2019 guidance by GE management.

Also Read: Why Should Investors Stay Away from Tesla (TSLA) in 2019

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Author does not have investment in stock discussed in this article.

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