• 288 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 290 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 690 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 700 days Big Tech Disappoints Investors on Earnings Calls
  • 701 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 703 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 707 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 708 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 710 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
Strong U.S. Dollar Weighs On Blue Chip Earnings

Strong U.S. Dollar Weighs On Blue Chip Earnings

Earnings season is well underway,…

Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

How Millennials Are Reshaping Real Estate

How Millennials Are Reshaping Real Estate

The real estate market is…

Oilprice.com

Oilprice.com

Writer, OilPrice.com

Information/Articles and Prices on a wide range of commodities: We have assembled a team of experienced writers to provide you with information on Crude Oil,…

Contact Author

  1. Home
  2. Markets
  3. Other

GE Looks To Divest Energy Assets As Turmoil Continues

General Electric Corp., as part of a turnaround plan announced November 13, halved its common stock dividend, from $.24 to $.12. per quarter, a fifty percent reduction. Wall Street had anticipated this move, but the stock has declined 8 percent following this announcement.

Given GE’s lengthy connection with the locomotive industry, it doesn't seem inappropriate to view the company as a slow moving train wreck, at least in terms of share price performance. Under former CEO Jeffrey Immelt, GE’s stock declined forty percent while the S&P 500 stock index more than doubled. Today’s dividend cut is simply one more in a long list of indignities for shareholders starting in the year 2000 when the stock peaked at about $60 per share. (It is trading a tad below $19 today.)

But since August this Stamford-based conglomerate has had a new Chairman and CEO, John Flannery. The dividend cut and proposed corporate restructuring are on his watch. As an aside, former CEO Immelt begin his corporate tenure by cutting the stock dividend after the financial conflagration at GE capital. Not an auspicious omen.

You can find Leonard Hyman's lastest book ‘Electricity Acts’ on Amazon

The company plans to streamline and reorganize around three legacy businesses: power generation, aviation, and healthcare while divesting oil and gas exploration, transportation and the energy connection/lighting businesses. Mr. Flannery and his team hope to collect $20 billion from asset dispositions. In addition, dramatic cost-cutting measures could boost corporate cash flows by a total of $3 billion between 2017 and 2018. You don't need us to tell you that strategically you can't cost-cut your way to growth and profitability. We suspect that new-CEO Flannery knows this too.

Of the remaining business lines, aviation and healthcare look capable of generating at least average earnings growth relative to the broad market. The power business on the other hand, faces “business challenges”, as the presentation slide show put it (as did the soon-to-be- divested oil & gas business). GE managers seem unable to name the real challenge.

Related: OPEC Chairman: Output Cuts Are The ‘’Only Viable Option’’

The electric utility business both in the U.S. and Europe has become a low growth-no growth business. This looks to be a secular rather than a cyclical challenge. As a result, GE may not see a pickup in demand for its gas turbines, generators, IGCC technologies, and nuclear fuel and support services that the company offers to the power industry around the world.

However, GE is also in the renewables business, particularly on shore and offshore wind turbines as well as hydro generation. From a strategic standpoint, the senior managers of the renewables business want to render the legacy power generation obsolete. Literally they are trying to kick the legacy fossil and nuclear generators off the grid. It must make for interesting conversations over the punch bowl at the annual Christmas party.

You can find Leonard Hyman's lastest book ‘Electricity Acts’ on Amazon

We are not experts in corporate strategy. But this house-divided-against-itself internal business dynamic seems self-defeating over the long term. It creates potential conflicts. Should one division be reined in to slow the decline of the other (bigger) division? The renewables business could likely command a much higher PE multiple than the slow growing (at best) legacy electric power generation business. How CEO Flannery handles this divide could well determine his success as CEO.

As for GE’s stock and its proper valuation, right now despite all the tumult the market values the company at about 19 times projected earnings and the dividend yields 2.5 percent. The stocks comprising the Dow Jones Industrial Averages trade at around 19 times estimated earnings and yield about 2.2 percent. In other words, investors currently seem to view GE as an average company. The question is whether the new management can meet those even those expectations with its existing mix of businesses and inherent business conflicts.

by Leonard Hyman and Bill Tilles for Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment

Leave a comment