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General Electric Company (GE) Has Reached Peak Immelt

GE stock continues to underperform under CEO Jeff Immelt

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General Electric Company (NYSE:GE) has reached peak Immelt, and the company built by the long-time CEO would not look familiar to Charles Dow.

Today’s GE is an infrastructure company. It makes turbines that create power, and engines that use it. Some of those are wind turbines.

The company moved to Boston, home of its huge GE Health division, last year, but that unit, too, is in the infrastructure business, making heavy equipment and the software to run it.

The stock’s move toward its 2015 high has been blunted, the dividend yield of 3% is not enormous, and operating cash flow for the last two quarters has been negative. If this is the best Immelt can do, maybe it’s time to try something else.

It’s a far cry from the company Immelt inherited in September 2001, a giant finance and entertainment unit built by Jack Welch. Immelt broke it up, sold most of the old pieces, then built a company whose returns impress no one.

Immelt’s Succession

Jeff Immelt turns 61 next month, and there has been speculation over his successor for more than a year. Welch spent seven years searching for Immelt before retiring at age 65. Immelt seems in no hurry to get started.

Whoever gets the job will have the power to transform the company again. Welch’s predecessor, Reginald Jones, built a huge consumer products company. GE has had only 12 leaders going back to 1892, and each has had full power to remake the company. It’s why the company has survived for so long, but also why periods like this one are so fraught.

Right now, there is no obvious choice. GE likes to keep someone in place for 15-20 years, so Vice Chairman John Rice seems too old at 59. Lorenzo Simonelli is in his early 40s, but he heads oil and gas, a huge division but one that may not inspire Wall Street confidence. CFO Jeff Bornstein is 50, but if Immelt hangs in until 65, as Welch did, he’ll be too old to make big changes when he takes over.

Promises, Promises

Under Immelt, GE has been an investment that over promised and under delivered. The stock is down 37% since Immelt’s succession, although he is right to blame the 2008 financial crisis, and most of GE Capital has since been sold.

Since 2009, Immelt might note, he has increased the dividend from 10 cents to 24 cents and the stock trades at over $30, up from less than $10 in early 2009.

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