General Electric is no longer cheap after cutting Culp

<p>General Electric (NYSE: GE) has declined to the point where the stock is no longer cheap.

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The market capitalization is $ 98.9 billion, a sale of $ 95.2 billion in 2019. The total debt, adjusted for loans between different GE units, is listed on US Securities and Exchange Commission Form 10-K as $ 90.9 billion.

It would be good if this meant that GE was paired to just win operations ready to rise. But almost 20% of the revenue still comes from the GE Power unit, which primarily got the company in trouble. GE Aviation is now more than a third of the whole, but there is the Boeing (NYSE: BA) scandal and the coronavirus from China to consider.

If you are looking for bargains in a down market, look elsewhere.

What Larry did

This does not mean that CEO Larry Culp has done a bad job. Given the hand he received, he has done a fantastic job.

General Electric is a more cohesive company today with more focused leadership than it was when he took over from John Flannery at the end of 2018. The former Harvard Business School professor has completed a master class in corporate reinvention. It is even possible that GE shares may be worth buying in a few years.

JPMorgan Chase analyst Stephen Tusa, who has been right on GE for as long as he is routinely identified as a “GE Bear”, still has some issues. It turns out that the 737 Max scandal is not the only problem with GE Aviation. The company beat analysts’ estimates of cash flow only because of its restructuring and progress payments that can not be kept. GE Capital is still recovering money for GE Industrial, which again makes the numbers seem better than they are.

GE shares fell even before the coronavirus hit the market. The share has now given up all gains in January and opens for trading on February 27, which decreases by 2% compared to the year.

Bullish Case

There are analysts who are bullish on General Electric, even more so than in January.

InvestorPlace’s Luke Lango says that the return in GE is still in its first few innings. He likes the idea of ​​buying the stock on weakness, which means it would now be a good time.

As we get past the short-term turbulence, he feels, GE Aviation will grow. The forthcoming supply of new capital from central banks means that industrial companies such as GE should benefit. The company can still sell its steam power division, which is its largest albatross. The average analyst estimate for 2022 is approximately $ 1 per share. Achieving that goal tomorrow would make GE a bargain today.

Stabilizing the balance sheet and cash flow were great successes, the bullish fall continues. GE Capital may well be worth close to its book value of $ 15.3 billion. An additional $ 9 billion should come in when GE divests the rest of Baker Hughes (NYSE: BKR), the oil tools business acquired by former CEO Jeff Immelt. Net debt can end the year as low as 2.5 times earnings before interest, taxes, depreciation (EBITDA), a measure of its net earning capacity.

The conclusion on GE stock

Even if everything the bulls say is true, you do not have to hurry to GE.

GE’s staff numbers are now down to 1951 levels. Only 70,000 of its 205,000 workers are in the United States

Much of General Electric’s recent rise was part of a general “meltdown” in the market. Just because it was overvalued in January does not make it undervalued now.

I’m still rooting for GE shares, but when it comes to my money, the company will have to wait.

Dana Blankenhorn has been a finance and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available in the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he had no shares in any of the above securities.