<p>Keeping calm is a challenge during sharp stretches. The General Electric (NYSE: GE) share has been testing the determination of even the strongest shareholders since mid-February. This is despite CEO Larry Culp’s best efforts to reassure investors.
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The corona virus from China is clearly putting a strain on the economy. Nevertheless, Culp has kept its annual budget outlook for General Electric intact for 2020. But does it make sense to stick to the GE share and trust Culp’s assessment?
Stay on the course
Culp is a smart man, but it is also his role to market the company and calm the investor community. So it is perfectly reasonable to doubt the CEO’s story. In addition, it is very difficult to get a decline in the share price that we have seen in General Electric recently. It really did not take long before the stock price dropped from $ 13 to $ 9 and changed.
It is probably easier to have confidence in the current CEO’s vision than in the company’s previous CEO. If you do not remember, Culp’s predecessor practically ran the reverent company into the ground. (It’s an exaggeration, but only a little.)
So there may be good reasons to believe Larry Culp. Informed investors still need to weigh the facts and come to their own decisions.
Speaking of facts, the investment presentation for GE Investor Outlook 2020 cites ongoing issues, including “Capital income lower” and “Non-operating cash flow decreases, but remains.” This is not very encouraging for thoughtful investors.
Nevertheless, Culp and General Electric keep the course and continue to stick to their full-year fiscal policy goals. Specifically, the company forecasts a full-year adjusted earnings per share of 50 cents to 60 cents, compared to 65 cents in 2019. The company also predicts $ 2 to $ 4 billion in free cash flow from industrial operations, compared to $ 2.3 billion generated in 2019.
Here is the catch
It sounds reasonable enough until you realize that something is missing.
In addition to the first quarter, the economic effect of coronavirus is not taken into account in the company’s full-year forecast. This not so small detail is worrying, or at least it should be for the shareholders concerned.
Larry Culp himself admitted in a conference call that General Electric has “large” operations in China. He also admitted, “what we do not know outweighs what we know at this time.” In addition, Culp said in a FactSet transcript: “It is a volatile fluid situation, unpredictable in many respects.”
The last thing most shareholders want to hear are the words “volatile” and “unpredictable.” Heck, they probably do not want to hear “floating” and “what we do not know” either.
Honesty is supposed to be the best policy, but it can be too much honesty from a CEO during a stock price cut.
In the same FactSet transcript, Culp revisited a couple of those naughty words when he explained, “We’re clearly in a floating fleeting moment.” However, he apparently tried to convince investors with “But as in previous periods, this will also pass, in our opinion.”
It’s not time to get philosophical, Mr Culp. GE shareholders want an action plan. To avoid getting back to Jeff Immelt, Larry Culp should deliver a specific, compelling, plan of action. The sooner he does it the better.
Takeaway at GE Stock
It can be said that General Electric has opened a new chapter in its history with responsible Larry Culp. The CEO needs more than one “this too should pass” attitude to calm the market. Hopefully he will deliver something real and convincing, rather than later.
David Moadel has provided compelling content – and crossed individual lines – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga and (of course) InvestorPlace.com. He also serves as chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Watching the Markets. At the time of writing, he had no position in any of the above-mentioned securities.