General Electric Company (GE) is coming under the microscope as analysts and experts question what the "new blood" means for former CEO John Flannery's restructuring effort.
GE stock has benefited immediately from the new leadership announcement this morning, surging almost 10% as of 12:30 in New York.
Experts are seeing possible "twists" in the current restructuring plan that could add value for shareholders.
The Best Laid Plans
Shortly after taking on the CEO chair, Flannery stated that he would sell $20 billion in company assets as part of a restructuring effort that will include spinning off non-core business entities.
The core portfolio is set to include just Aviation, Power and Renewable Energy, once the full restructuring is completed. The board of the Boston-based company unanimously approved Flannery's plan less than two months ago.
To help restructure, the company moved to shed its transportation business and merge it with Wabtec Corporation (WAB) , a passenger rail company.
Also, the company is still pursuing plans to separate GE Healthcare into a standalone company and separate oil and gas provider Baker Hughes (BHGE) over the next two to three years in order to streamline the company and cut debt.
The Wabtec deal alone returned $11 billion to the company. However, the board appeared to be dissatisfied with the progress of and speed with which their approved plan has been handled, with GE Power's significant shortfalls acting as a sticking point.
"The short-leash on Mr. Flannery was pulled this morning as the turnaround at GE has labored," Action Alerts Plus senior portfolio analyst Jeff Marks told Real Money this morning. "Mr. Culp will have his work cut out to expedite the process."
Culp's public statements since taking over Monday have emphasized the positive aspects that exist in the business and the opportunity that remains in restructuring.
"GE remains a fundamentally strong company with great businesses and tremendous talent. It is a privilege to be asked to lead this iconic company," Culp said this morning. "We remain committed to strengthening the balance sheet including de-leveraging."
The company confirmed to Real Money that the overall plan remains in place.
"We have no change in the strategy we announced," the company's chief communications officer Jennifer Erickson told Real Money this morning.
Room to Go Agley
While the company is keeping its overall plan in place, analysts are seeing opportunity for Culp to tweak the streamlining initiative to create value.
"My best guess is that we could have something that looks very different as far as execution while keeping the overall plan in place," Morningstar Equity Research analyst Joshua Aguilar told Real Money. "There could be components that go on the block while the overall plan stays in place."
He said that more opportunities to shed businesses could allow for a more nimble business, even as units like GE Power encounter difficulties.
"I think the plan will take a slightly different form, but I'd definitely think they'd avoid doing a complete 180," he said.
His buy rating on the stock is based upon his belief that Culp will be able to tweak the portfolio appropriately to unlock shareholder value.
Aguilar said his belief is supported by Culp's strong track record at Danaher Corporation (DHR) and the fact that investors seem to be more confident in his leadership, giving him increased latitude for strategy shifts.
Better Opportunities Out There
To be sure, not all are looking at GE as an opportunity at the moment, given its longer term trend.
"Not only has it been in a downtrend for years but it typically is not very volatile and seldom has sustained upside moves," Real Money contributor James "Rev Shark" DePorre wrote in his column this morning. "It simply is not a very good or interesting trading vehicle and that is not going to change any time soon."
The stock has lost 27.9% year to date, backing up DePorre's point.
In September 2000, General Electric was the largest company in the world w/ a market cap of $575 billion. Today its market cap dropped below $100 billion, a decline of 83%. $GE pic.twitter.com/NrElwSjBsY
— Charlie Bilello (@charliebilello) September 25, 2018
Bottom Line
While the stock has performed miserably this year, the assets that the company holds are still unquestionably valuable.
Of course, if the plan was unanimously approved by the board not so long ago, they must feel it is a positive way forward for the company. The execution has been the issue according to experts.
As a new CEO Culp, who is already drawing praise from analysts and traders, steps in, there will surely be opportunities to deviate slightly from the current course and improve this execution strategy.
Getting the company back to its household status and prestige is a long way off, but there could be good opportunity for investors in the stock given Culp's track record, the shift in sentiment felt this morning, and the sheer assets the company holds.
GE might not be much of a core holding anymore, but it could offer an opportunity to traders who believe in the new management.
