Umair Gaines
General Electric (GE), an American multinational conglomerate, has had a tumultuous history, with its stock price seeing ups and downs over the years. In 2019, GE's stock price rose due to increased cash flow projections, and the company ranked 33rd in the Fortune 500 that year. However, GE has also faced challenges, such as leadership changes, poor financial decisions, and legal issues. In 2024, GE split into three companies: GE HealthCare, GE Aerospace, and GE Vernova, with investors hoping that this move will bring success and improve the company's performance. Despite a poor track record of breakups, there are positive signs, with shares of GE up nearly 37% and its healthcare business seeing a 50% rise in shares since the breakup. While there is no clear vision for the future of GE from its current leadership, there is a sense of hope that the company can recover and rebuild its reputation.
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What You'll Learn
GE's stock price rose in 2019 due to positive cash flow projections
General Electric (GE), an American multinational conglomerate, has had a tumultuous history, with its stock price fluctuating over the years. In 2019, GE's stock price rose due to positive cash flow projections, despite earlier warnings of negative industrial cash flow.
In March 2019, GE's CEO, Larry Culp, surprised investors by forecasting a net cash outflow from the company's industrial businesses, attributing it mainly to issues in its power-plant unit. This pessimistic outlook caused a sharp drop in GE's stock and bond prices, with shares closing 4.7% lower at $9.89. The decline in share prices was the most substantial intraday percentage drop in over three months, erasing more than $4 billion from GE's market capitalization.
However, later in the year, GE's management presented a more optimistic outlook for 2020 and beyond. They predicted that cash restructuring costs would decrease in 2020 and significantly in 2021, resulting in substantial cost savings. Additionally, they anticipated that corporate overhead costs would be reduced by at least $500 million compared to 2019. GE's power and renewables segments were expected to generate positive free cash flow in 2021, surpassing the 2018 level of $4.5 billion.
The positive cash flow projections for 2021 and beyond likely contributed to a rise in GE's stock price in 2019. Despite the initial negative forecast, investors likely regained confidence as the year progressed, driven by the expected improvements in cash flow and cost savings. This shift in sentiment may have led to an increase in stock purchases, pushing the stock price higher.
While the exact figures for the stock price increase in 2019 were not readily available, it is worth noting that by 2021, GE's stock had been on a surge, driven by a surprise third-quarter profit and positive Covid-19 vaccine news. The stock price rose over 70% in the fourth quarter of 2020, and shares of GE were up nearly 37% in April 2024, standing near a seven-year high.
In conclusion, GE's stock price rise in 2019 can be attributed to the positive cash flow projections for 2021 and beyond. The company's efforts to reduce costs, improve cash flow, and focus on its power and renewables segments likely influenced investors' confidence, leading to an increase in stock purchases and a subsequent rise in the stock price.
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GE's 2024 split into three companies could unlock value
General Electric (GE), an American multinational conglomerate, has undergone significant changes in recent years, including divestments, acquisitions, and leadership transitions. In 2024, GE announced its plan to split into three independent, industry-leading, investment-grade public companies: GE Aerospace, GE HealthCare, and GE Vernova (energy). This strategic move aims to unlock value, improve capital allocation transparency, and enable each entity to focus on its core strengths and growth opportunities.
GE Aerospace, the aviation business, is expected to be a significant player in the industry, with a market value of over $100 billion. The company has a long history in aerospace, dating back to its early days of supplying the military with equipment during World War II and the subsequent development of the popular J-47 jet engine.
GE HealthCare Technologies (GEHC), which was spun off in January 2023, has already demonstrated success, with its shares rising by nearly 50%. GEHC's solid 4Q23 results, debt reduction, and strong FY24 outlook have contributed to its positive performance.
GE Vernova (GEV), the energy company, is a global leader in the electric power industry, serving 20% of a $1.4 trillion market. GEV focuses on innovating technology and advancing global sustainability through its Power, Wind, and Electrification segments. The company has invested $1 billion in R&D in 2024, signalling its commitment to driving the energy transition and enhancing profitability.
The spin-off structure is designed to be tax-free for GE shareholders, with each receiving one share of GE Vernova for every four shares of GE owned. This 4-for-1 forward stock split aims to unlock value for shareholders and improve the performance of the separate entities. While spinoffs have a mixed track record, with a Bain & Co study showing an average total investor return of 5.1% annually over three years, investors are optimistic about GE's future performance.
The completion of GE's transformation into three focused companies by 2024 could indeed unlock value, improve transparency, and enable each entity to thrive in its respective industry.
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GE's 2015 acquisition of Alstom's power business was a flop
General Electric Company (GE), an American multinational conglomerate, has had a tumultuous history, with its fair share of successes and failures. One notable setback was its 2015 acquisition of Alstom's power and grid business, which is widely considered a flop.
In 2014, GE announced its intention to purchase Alstom's power and grid divisions for $17 billion (€12.4 billion). The deal faced scrutiny from French regulators due to the strategic importance of the industry and resulted in several concessions, including forming joint ventures with French companies and selling Alstom's heavy gas turbine business. The final purchase price was €9.7 billion ($10.6 billion), including adjustments for joint ventures and deal structure changes.
The acquisition was GE's largest-ever industrial acquisition and was expected to generate $0.05-0.08 of earnings per share in 2016 and $0.15-0.20 by 2018. However, it did not live up to expectations. GE CEO John L. Flannery himself acknowledged that they overpaid for the business, stating that they would have paid a substantially lower price if they could go back in time. In October 2018, GE wrote off $23 billion from the value of its power industry division, largely attributed to the Alstom purchase.
The failure of the Alstom acquisition contributed to GE's decline in profitability and underperformance in the market. GE's share price suffered, and the company faced a series of legal and financial issues, including fraud allegations, pension plan losses, and environmental pollution concerns.
To revive its fortunes, GE embarked on a transformation strategy, which included the split-off of Synchrony Financial and the reduction of its financial services businesses. In 2021, GE announced a plan to split into three companies focused on aerospace, healthcare, and energy, with the aim of unlocking value and improving capital allocation transparency. The spinoffs of GE HealthCare Technologies and GE Vernova (energy) have been well-received by investors, with share prices rising significantly.
Despite the challenges, there are signs of hope for GE. The successful spinoffs and the positive performance of GE Aerospace have boosted investor confidence. Additionally, the company has a history of innovation, dating back to its early products like incandescent light bulbs and electric locomotives. GE has also contributed significantly to military equipment and technology during World War II and played a role in changing the look and function of American homes. With its current focus on core strengths and growth sectors, there is potential for GE to regain its footing and rebuild its position in the market.
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GE's cash flow situation is important due to past struggles
General Electric (GE) has had a tumultuous history, with its fair share of struggles and controversies. The company's cash flow situation is of paramount importance due to its past challenges, which have included leadership changes, poor financial decisions, fraud allegations, and environmental concerns.
GE's cash flow projections for 2019 and beyond showed a positive increase, which excited investors and caused a jump in the company's stock price. This was a welcome development for GE, which had been facing significant struggles. In 2017, there was a leadership change when John Flannery replaced long-time CEO Jeff Immelt, who had been with the company for 16 years. Immelt's departure was met with a positive response from investors, indicating their dissatisfaction with his leadership. Flannery inherited a struggling company and was explicit about the need to fix GE's culture, calling for more "rigor" and "accountability."
GE has also made some questionable financial decisions, such as the $9.5 billion purchase of Alstom's power business in 2015, which was considered a flop by some, including GE CEO John L. Flannery. The company has also faced fraud allegations, with concerns about under-reserved losses related to its long-term care business. In 2018, a lawsuit was filed against GE, alleging violations of securities laws. Additionally, GE has been implicated in environmental issues, ranking as the fourth-largest corporate producer of air pollution in the United States, according to data from 2000.
The company's cash flow situation is crucial because it provides a sense of stability and recovery from these past struggles. As Spencer Jakab wrote in the Wall Street Journal, repairing a balance sheet takes time, similar to rebuilding a reputation. GE's focus on increasing cash flow and restructuring its balance sheet under CEO Larry Culp has shown some success, with rising amounts of cash flow. However, Culp has yet to present a clear vision for the future of GE, which may be necessary to maintain investor enthusiasm and commitment.
Despite the challenges, there are signs of hope for GE. The company's shares have risen, and its spinoffs into three companies focused on aerospace, healthcare, and energy may unlock value and improve performance. While the success of these spinoffs is not guaranteed, investors are optimistic that they will defy the poor track record of corporate breakups.
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GE's 2018 removal from the Dow Jones Industrial Average
General Electric Company (GE) was an American multinational conglomerate founded in 1892. It was born out of the race to provide affordable light and electricity to fuel the growth of industrial America. GE quickly became a household name and was among the companies credited for changing the look and function of the American home. In 2005, it was the most valuable publicly traded company in the United States.
However, GE's performance began to decline, and in 2018, it was dropped from the Dow Jones Industrial Average (DJIA), an index of 30 companies intended to represent the overall performance of large U.S. companies. GE's removal from the DJIA was attributed to its poor stock performance, with its share price down about 55% over the past year. The company was also on shaky financial ground, with concerns about its pension plan and long-term care liabilities. GE's replacement in the DJIA, the Walgreens Boots Alliance, was considered a more stable stock and a better representative of the consumer and healthcare sectors.
GE's removal from the DJIA was a symbolic blow to the company, which had been a component of the index for more than 100 years. It signalled that GE was no longer a good representative of the overall performance of large U.S. companies, particularly in the consumer and healthcare sectors. However, removal from the Dow is not a corporate death knell, as some companies removed from the index have continued to exist and even outperform the industrial average.
Following its removal from the DJIA, GE continued to face financial struggles, with fraud allegations and concerns about its ability to weather a recession. In 2021, GE announced plans to split into three companies focused on aerospace, healthcare, and energy, with the aim of unlocking value and making capital allocation more transparent to investors. As of 2024, GE has completed its $191.9 billion breakup into GE HealthCare, GE Aerospace, and GE Vernova, with shares of the company up nearly 37% that year.
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Frequently asked questions
GE has been facing a variety of challenges in recent years, including financial losses, fraud allegations, and environmental concerns. In 2018, GE ended its long-time run as a component of the Dow Jones Industrial Average, and the company has since undergone a restructuring process, including spinning off into multiple companies focused on different industries.
Yes, there are some positive indicators. In 2024, GE's shares were up nearly 37% year-to-date, and its healthcare business, GE Healthcare Technologies, saw a 50% increase in shares after its spinoff in 2023. Additionally, there has been a consistent decline in reported CO2e emissions since 2016.
GE still faces several challenges. The company has been criticized for its culture and leadership, and there are ongoing legal issues, including investigations by the SEC and the Justice Department. The company's stock price has been volatile, and there are concerns about potential bankruptcy if there is an economic downturn.
