Shares of GE (GE) are up 15% in three days to $16.71, their highest level in 2009. That has added over $25 billion to the firm’s market cap. GE has not released any major news to cause the rise.
Some observers say that the increase is due to government figures that industrial production was up more than expected in August, but GE is not primarily an industrial company any more.
Consumer spending has begun to rebound, but it is hard to say why that would help GE’s earnings engine, which is its large infrastructure businesses.
GE could be benefitting from the assumption that the global economy is rebounding more quickly than expected. That is one of the most compelling possible reasons for the run-up, because GE is in such a wide array of businesses.
GE Performance Doesn’t Support a Jump in Stock Price
There is not much in GE’s recent performance to support optimism about the company’s near-term future. In the quarter that ended June 10, revenue fell from $17.4 billion in the period a year ago to $15.9 billion. Net income was down from $5.3 billion to $2.7 billion. Between GE’s two large infrastructure segments — energy and technology — revenue fell slightly, and earnings were nearly flat. What’s more, the rest of GE’s operating segments posted poor numbers, and there is little reason to believe that those will recovery in 2009.
Wall Street is still deeply concerned about what kind of assets GE Capital Finance holds. When bank earnings were hurt badly in the last quarter of 2008, analysts became so concerned about the presence of toxic assets held GE that traders drove the stock down to $5.87. The shares traded at $38 in April 2008. It was an extraordinary plunge for the value of a company that is still the largest conglomerate in the world.
Wall Street’s concerns about the Capital Finance operations of GE are not over. In the last quarter, revenue at the unit dropped from $18 billion to $12.8 billion. Segment profits fell from $2.9 billion to $590 million. Until investors are absolutely certain that there is no time-bomb ticking inside the Capital Finance unit, the parent’s shares are not likely to move back close to their 52-week high of $29.20.
GE’s consumer and industrial business has been a dog for some time, and the company has made some effort to sell off properties within that portfolio.
But it continues to stubbornly hold onto NBC Universal. Most of the revenue from this unit comes from TV network operations and the studio. GE management is repeatedly asked why the business is a good fit with GE’s other companies, which bear no relationship to it, and the answer is always that GE see a bright future in entertainment. Revenue at NBCU fell from $3.9 billion to $3.6 billion last quarter. Segment profits were down from $909 million to $539 million. GE simply won’t listen to the argument that NBCU is an earnings albatross.
Whether GE is looked at as a whole or the sum of its parts, there is nothing that investors can point to that would justify a sharp increase in the firm’s market value. It will take a quarter or two of beating earnings expectations before that happens.
Don’t be fooled by the short-term run-up. I currently rate GE a D, or strong sell.
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