Is the turnaround story from General Electric (General Electric Stock Quote, Chart, News NYSE:GE) now convincing enough to deserve investor attention?
Not yet, says Christine Poole of GlobeInvest Capital, who thinks the sight lines are still a little unclear for GE.
General Electric had been fading for a number of years before things started to look better last year when the stock not only stopped its slide but gained 47 per cent. And the good vibes have continued into 2020 with GE delivering forecast beats in its fourth quarter earnings report at the end of January. Year-to-date, the stock is now up almost 16 per cent.
But the company still has a lot of work to do concerning its debt load and underperformance from two of its four divisions: renewable energy and power, with the latter business reporting a 30-per-cent drop in orders for its last quarter to $4.5 billion and showing no growth in its revenue.
Still, GE’s aviation business is looking strong, with revenue up eight per cent year-over-year in its latest quarter, despite the fact that the business makes engines for Boeing’s currently-grounded 737 Max 8 and thus has production currently at a standstill.
On the year ahead, CEO Larry Culp said in the fourth quarter press release, “Our priorities looking forward are clear. We are solidifying our financial position, continuing to strengthen our businesses as improvement efforts build momentum, and driving long-term profitable growth. We remain committed to creating value as we continue our multi-year transformation.”
GE is not the same industrial stalwart it once was but Culp has made some bold moves to right the ship, including holding a fire sale on a number of GE’s assets and cutting its dividend to practically nil.
Are management’s renewed efforts at reducing debt and focusing on its more thriving businesses enough to warrant your hard-earned investment dollars? Not yet, said Poole, who spoke to BNN Bloomberg Thursday.
“We’re still on the sidelines for GE,” said Poole. “It’s obviously one that you’re always watching because they were such an industry leader from years bygone. But the company has changed. Larry Culp is new, he came from Danaher, and I think he’s starting to take some action.”
“But to me, the power business is still a real drag for the company [and] their engine business is being impacted by Boeing’s shutdown of the 737 Max 8, so I still feel that this company needs to be restructuring,” she says.
“I’m not sure what exactly it’s going to look like a year from now and its earnings and cash flow profile, so I’m still waiting and watching. I’m not ready to jump in,” Poole says.
This week, analyst John Inch of Gordon Haskett told CNN Business that while Culp has done a credible job restoring confidence in GE, the battle is still an uphill one and the current momentum behind GE’s share price is likely to falter, says Inch.
“Culp transformed it into a beat-and-raise story,” said Inch. “It certainly isn't a buy because I don't believe in the future earnings trajectory. They have a lot of issues.”