GE Stock: Why does CEO Jeff Immelt Still Have a Job?

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If cats have nine lives, then Jeff Immelt, CEO of General Electric Company, (NYSE:GE) has had about 100 of them.

Why does GE CEO Jeff Immelt Still Have a Job?The Sept. 11 terrorist attacks took place a few days after the affable 59-year-old took over the storied conglomerate in 2001. The world has changed in innumerable ways both small and large since that tragic day, but one of the things that has remained constant is Immelt’s leadership at the helm of GE, and his impact on GE stock.

Remember. the average tenure of a Fortune 500 CEO is about 4.6 years. In theory, someone who has more than doubled that tenure should be producing above-average returns for shareholders. Sadly, as shareholders of GE stock know all too well, that hasn’t been the case for Immelt.

On Immelt’s watch, GE stock has languished in Wall Street’s penalty box, tumbling more 30% while the benchmark S&P 500 has almost doubled during that same time period.

Barclays analyst Scott Davis recently speculated that Immelt might head to the exit within the next year because investors are “ready for a change at the top now.”  This raises the question, though — why should they wait?

GE Stock Forecast

I know that GE brags about the $10.8 billion that it returned to shareholders from buybacks and dividends. While shareholders certainly appreciate GE largesse, they would much prefer to have a higher GE stock price and it’s unlikely that will happen with Immelt remaining in charge.

Fret not, shareholders, because the plight of GE stock isn’t hopeless. When Immelt decides to exit the stage, shares of the Fairfield, Connecticut-based conglomerate will rise because it will raise the question of splitting up GE. Investors these days love splitting up companies.

The tricky part here, though, will depend on the successor.

Though Davis argued that CFO Jeff Bornstein would be the front-runner to replace Immelt, I doubt that choosing Immelt’s underling would satisfy shareholders looking for a change. Indeed, GE probably will need to bring in an outsider or someone outside of Immelt’s orbit.

But should that process happen in the timeframe that Barclay’s expects, which seems realistic, that would be a positive for GE stock. That’s why it an ideal time to buy GE stock now. Once the post-Immelt speculation starts to bubble, the shares may become unaffordable.

In many ways, Immelt may be the luckiest may in the history of corporate America.

He is lucky that he doesn’t have to battle activist investors like Carl Icahn. Perhaps, that’s because Immelt hasn’t been afraid to make bold moves that they might suggest. The problem is that GE has market capitalization of $255 billion, with its fingers in such disparate businesses as nuclear energy and medical diagnostic equipment. It’s tough to make a difference in a company that huge. Indeed, if anyone creating a company like GE today they would denounced as crazy, and rightfully so.

Immelt is a GE lifer whose father also worked for the company. He hasn’t been bound by tradition and has shed many businesses where growth was lacking, including NBCUniversal, appliances, plastics and store-branded credit cards. He also slimmed down GE Capital, which has long been a source of concern for Wall Street since it nearly imploded during the financial crisis.

The change has been dramatic. More than 20 percent of the $126 billion in 2001 revenue came from business that Immelt has divested. But he has made his share of blunders too.

GE Missteps

As the Wall Street Journal recently noted, Immelt made huge bet on the oil and gas business, spending $14 billion on related companies. He put Lorenzo Simonelli, whom the paper described as a “promising young executive,” in charged of the business, which generated about $25 billion last year.

The collapse in oil prices has put GE in a bind since companies are slashing their capital expenditure budgets. Exxon Mobil Corporation (NYSE:XOM), the largest publicly traded oil company, is cutting spending by 12 percent and ConocoPhilips (NYSE:COP) has announced a 20% reduction.

Of course, GE is confident that it can weather the oil downturn and made another huge bet on energy with its planned $13.5 billion acquisition of Allstom SA’s energy business. This move is not without risk either. For one thing, regulators in Europe are examining the deal closely, so there is no telling when it would be approved.

Power generation is a boom and bust business. In the early part of the decade, there was uptick in power generation projects, fueled by optimism about deregulating power markets. The subsequent bust was pretty bad, forcing Calpine, the largest owner of gas-fired power plants, into bankruptcy in 2005, among others. GE also is a big player in nuclear power, a market that at one time showed promise. The so-called nuclear renaissance, though, came to a grinding halt after the meltdowns in Japan a few years ago.

Bottom Line

Barron’s has named Immelt one of the world’s best CEOs three times. Indeed, he did an admirable job in steering GE through the worst financial crisis since the Great Depression. But his failure to boost GE stock cannot be overlooked and indicates that the time for someone else to takeover one of America’s most iconic companies.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

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Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2015/03/ge-stock-why-does-ceo-jeff-immelt-still-have-a-job/.

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