- CEO Jeff Immelt's reinvention of the company as an industrial power is finally complete.
- What is left is a steady 3% dividend payer that is up 20% this year.
- Just in time for him to announce a successor who will tear up the blueprint and start again.
Jeff Immelt’s General Electric (NYSE:GE) will never have the same grand success of predecessor Jack Welch. The GE stock is up 20% this year, but that still puts them 25% below where they were in September, 2001, when Immelt took over from the legend who made the company a financial and media powerhouse. The company's financial arm almost dragged it to bankruptcy during the financial crisis and had to be rescued by an emergency investment from Warren Buffet. Since then it has been actively hiving off its financial assets.
Immelt’s company is completely different. He has built a giant industrial company moving towards building internet of systems and over the last few years has been jettisoning the company’s finance operations as fast as he can. What is left has serious financial heft – operating cash flow of $35 billion per year, assets of $653 billion with steadily decreasing debt, and revenues steadily moving toward $150 billion/year.
But it’s not the kind of company investors want to buy. It’s a slow-growth, slow-moving company that makes things like jet engines, and is still heavily invested in oil and gas. It has become, again, what it was almost a century ago, a classic “widows and orphans stock,” delivering a 3% yield on dividends of 23 cents/quarter. Institutions and mutual funds own 57% of the common, mostly conservative institutions like Vanguard.
Still, as he considers whether to ditch the company’s headquarters in Fairfield, Connecticut over state tax laws, perhaps for a sunnier climate like Atlanta, Immelt remains steadfast. He calls the acquisition of Alstom, a French engine company whose business is mainly done in the developing world, a “match made in heaven.” GE still maintains its political power, and was able to get the Export-Import Bank re-authorized despite Republican opposition. The spin-off of consumer finance as $SYC was a success, the issue being over-subscribed by GE shareholders.
Not everything has gone well this year for GE. Immelt this week cancelled the planned sale of its appliance business to Electrolux of Sweden, citing U.S. antitrust opposition. The company is having trouble getting its quirky ads, featuring a young programmer trying to explain his new job with the company, heard and is moving toward ads on “live” programming, sponsoring segments in late night. Speaking of Quirky, a home automation company by that name recently went bankrupt despite GE’s backing.
GE is still rated a “buy” or “overweight” by most of its analysts, who expect earnings of 51 cents per share, which should cover that dividend twice over, and perhaps allow a small increase.
Maybe, after the next recession, GE will be a growth stock again, but that will be after Jeff Immelt retires, and his successor has begun his (or her) own reinvention of the firm.