<p>In previous economic crises, investors in General Electric (NYSE: GE) piled up.
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It was a symbol of economic strength in the year 2000 dot-com bomb. It was still a “systematically important” financial institution during the 2008 crisis.
Today you do not need GE bearings. It’s just another troubled industrial company.
General Electric opened for trading on April 7 at approximately $ 7.70 per share. It is down from a February high of over $ 13, but up from a low of March at about $ 6. The market capitalization is now about $ 62 billion.
GE shares no longer have a price-to-earnings ratio because they no longer have results. Its nominal dividend of 1 cent per share now represents a return of 0.6%.
General Electric is still an industrial giant
The most interesting thing about GE today is its price-sales relationship. The company had sales of $ 95 billion last year, which was more than Dell Technologies (NYSE: DELL). At the current valuation, the ratio between price and sales is 0.65.
GE is still doing important things. The GE Healthcare unit manufactures medical devices so yes, fans do. Its renewable energy unit, which manufactures windmills, is now a significant part of the business. The GE Power Unit, the center of its past problems, had $ 302 million in net income last year.
The show star was GE Aviation, which manufactures jet engines. The unit represented 34% of sales last year.
The Boeing (NYSE: BA) 737-Max scandal slowed the unit in 2019. The new coronavirus has kicked it to the sidewalk. CEO Larry Culp was forced into half of the staff. This came after laying off 10% of workers earlier. The union wants to create fans, but a jet engine system is not a fan system. GE Healthcare increases fan supply with the help of Ford (NYSE: F), which increases a simplified version of an existing design.
The balance sheet damages the GE share
The GE share was taken down from its balance sheet.
Last August, Harry Markopolos, best known for blowing the whistle on Bernie Madoff, predicted that its opaque balance sheet could lower the company.
Culp has made the balance sheet less opaque, but it’s still a horror show. At the end of December, it showed $ 91 billion in loans and nearly $ 32 billion in pension liabilities. It was also nearly $ 40 billion in exposure to long-term reinsurance sold during the late Jack Welch in the 1990s. The exposure number is an estimate. That was $ 35.6 billion at the end of 2018.
The best thing Culp has done for the balance sheet was to sell GE Healthcare biopharma units to Danaher (NYSE: DHR). He was Danaher’s CEO before “retiring” to Harvard Business School, from where GE recruited him in 2018. The deal puts $ 20 billion in debt.
An analyst from Gordon Haskett believes that GE still needs to raise more capital to stay afloat through the crisis. A share increase would water existing shareholders.
Despite GE’s improved balance sheet, the latest debt offering costs more than it replaced. This comes at a time when banks are getting money for nothing.
The conclusion of General Electric
GE today reminds me of the Spirit of St. Louis, congested on the runway, struggles to get over the trees and fly to Paris.
I understand that. GE is a major exporter, a well-known name in business history.
I do not agree with InvestorPlace’s Larry Ramer, who recently called GE a good long-term game, and believe that a further share increase will not be needed. GE shares can rise significantly if we go through the worst pandemic.
But this is a time for you to do triage, not reach value. As InvestorPlace analyst Matt McCall recently wrote, GE is too speculative right now for long-term investors. There are better games out there, companies with strong balance sheets and brighter prospects. Companies like Dell.
Root for GE layers from the sideline.
Dana Blankenhorn has been a finance and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. At the time of writing, he did not own any of the companies mentioned in this story.