Is GE Ready For A Break-out?

  • GE's transformation from a banking company to an industrial company is continuing.
  • CEO Jeff Immelt's political views have become a lightning rod for criticism.
  • He is angry with both sides, seeking mainly to improve his corporation's results, and succeeding.

General Electric Company (NYSE:GE) CEO Jeffrey Immelt, a lifelong Republican, was embarrassed several years ago after other party members condemned his appearance on a trade group organized by Democratic President Barack Obama.

He is spending this campaign season repairing his political image, writing a long condemnation of Democratic policies and earning the wrath of Democratic candidate Bernie Sanders, who said he “welcomed” Immelt’s contempt. (The line is a call-back to a famous line from Franklin D. Roosevelt's 1936 re-election campaign.)

The new feistiness extends to GE’s operations, with December 2015 revenues up nearly 10% from a year earlier, and profits more than doubling from 15 cents/share to 39. For the first quarter of 2016, the expectation is for earnings of 21 cents/share on revenue of $27.96 billion. GE is due to release earnings on April 22 before the market opens.

The stock, meanwhile, has nearly recovered to its January 1 level and is up 11% since the company reported earnings on January 21. The 18 analysts covering the stock have an average rating of "overweight." While Sanford Bernstein analyst Steven Winoker recently downgraded the stock, he did so based on valuation, as it is up 30% in just the last year and may be getting ahead of itself. 

GE stock chart

Source: General Electric Company stock price chart by amigobulls.com

The story at GE remains its evolution from the banking-and-entertainment company it was under Immelt's predecessor Jack Welch into an industrial equipment powerhouse. Immelt has traded in a GE Capital dubbed “too big to fail” during the 2009 recession for companies like Alstom of France, whose power turbine and electric turbine business cost $10 billion after a long-running fight against both the government and Siemens Aktiengesellschaft (OTC:SIEGY). The transformation included the spin-off of its consumer finance business as Synchrony Financial (NYSE:SYF), with existing shareholders being given the choice of keeping their GE shares or taking Synchrony. (Since that exchange was completed, shares of GE have outpaced those of Synchrony.)

Immelt is also moving the company’s headquarters from Connecticut to Boston, a center of health care innovation because GE is very big in big medical devices like MRI machines. (He also got substantial tax benefits.)

It is taxes that have gotten Immelt into trouble with liberal Democrats, who have called foul on the company’s offset of past losses to eliminate current liabilities. Sanders also calls Immelt a job exporter, while Immelt says it is current Administration policies that make American labor unaffordable, and high corporate tax rates that force it to keep cash overseas.

None of this is as black-and-white as the political optics make it appear. GE lobbying got the Export-Import Bank re-authorized over fierce Republican opposition. The company’s size and Immelt’s ambition to remake it as a manufacturer have simply left it in the gunsights of both parties, and it is on that transformation, not his political moves, that Immelt will be judged.

Right now, the grades look good. GE is a yield stock able to easily pay its 2.97% yield with net income, and a book of business that extends out many years because it’s making parts for jet airplanes and large power plants rather than movies, toasters, or TVs (to cite three products from past GE Administrations). When Immelt retires, Thomas Edison, who sold his Edison Electric to form the company in 1892, would recognize Immelt’s GE. That will be his legacy.

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  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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