General Electric shares have been on a tear recently. Since falling to a low of $7.65 in August of 2019, shares are up >55% over the last few months. Analysts are pointing to a successful turnaround by CEO Larry Culp who is focused on streamlining business lines and reducing the company’s hefty debt load.
On Monday, GE shares climbed nearly 4% after a research analyst at Deutsche Bank said he believes the company could outperform expectations in Q4 2019 and shares could rise.
Under the Hood
Accounting Scandal? In August 2019, a well-known forensic account (if that’s even possible) named Harry Markopolos published a report accusing GE of cooking the books on its long-term-care insurance business. He called GE a “bigger fraud than Enron,” and investors took the claim seriously because Harry is the guy who uncovered the Bernie Madoff Ponzi scheme. Shares dropped over 11% when the report was released.
But in the subsequent days and months, accounting experts poured over the details of GE’s books and the armageddon scenario failed to play out. Today, the accounting scandal is considered safely in the rear-view mirror.
Aerospace: One of General Electric’s strongest business lines is its aerospace group. GE Aviation produces jet engines and other mechanical components for some of the world’s largest aircraft programs. Unfortunately, one of those programs is Boeing’s 737 MAX. GE took an estimated $1.4 billion cash flow hit in 2019 due to the grounding.
Debt: A key focus for GE has been reducing its debt load by selling-off what it considers non-core assets. GE announced the sale of its biopharma business to Danaher for $21 billion at the beginning of 2019. And they are gradually selling their stake in Baker Hughes, the troubled energy service company. The
- Takeaway: General Electric’s transformation is far from over. But investors seem to be optimistic about the direction of the company under Larry Culp. But not everyone is convinced. Long-time GE bear Stephen Tusa, a research analyst at JP Morgan, believes GE stock is worth just $5 per share (the lowest price target on Wall Street). The company reports earnings on January 29. Set your calendars.