General Electric Company (GE) is making good progress in its transformation to become a pure-play industrial name, and that should be heartening for anyone holding GE stock.
In the latest move to shed its financial businesses, the company sold GE Asset Management unit to State Street Corp (STT) for what’s expected to be $485 million in cash.
While this is a much bigger deal for STT than it is for GE, the industrial conglomerate can check the sale of one more financial asset off its to-do list.
Half-a-billion dollars doesn’t move the needle for GE stock. The company is sitting on $70.5 billion in cash and cash equivalents alone. Hell, GE generated $124 billion in free cash flow last year.
As for State Street, however, it’s a nice score. GE Asset Management includes managing portfolios for retirement plan sponsors, foundations, endowments, sovereign wealth funds and insurers. It also oversees GE’s pension plan.
State Street, with $2.2 trillion assets under management, will add another $100 billion because of the deal, but it’s the mix of clients that makes it a win.
State Street is known for exchange-traded funds and mutual funds, and the acquisition expands its capabilities to direct private equity and real estate, State Street said.
GE Stock Is a Solid Mega-Cap Choice
For GE, the latest sale is just another step in its plan to become an industrial company. The industrial-financial hybrid that served it so well for so long became a liability under new government regulations.
As we’ve argued before, it’s a great idea. The market certainly thinks so. GE stock was range bound for years before it announced the transformation. Now shares are up nearly 30% over the last 52 weeks.
Deals like the one with State Street show that GE is moving briskly to implement a finance-free plan, and that can only fuel hope for GE stock.
More importantly, GE is managing fairly well through stressful economic times. The macro picture is one of slow growth: Oil prices are depressed, the U.S. dollar is strong, and yet, GE has beaten Wall Street’s earnings estimates for three quarters in a row, despite disappointing revenue.
The market looks like it’s giving GE the benefit of the doubt when it comes to strategy. This latest deal helps keep that faith intact.
With a dividend yield of almost 3%, GE stock looks like a solid, if boring, blue-chip bet.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
