General Electric Company (NYSE:GE) stock drew some buyers last month when it was announced John Flannery, head of GE Health, will become CEO on Aug. 1. But GE stock has since gone right back down as investors decide there is not much he can do with the mess left him by predecessor Jeff Immelt save play out the hand. Adding salt to the wound today, JPMorgan analysts cut their price target to $22, sending the stock price down nearly 4%.
That hand was the merger of GE Energy into Baker Hughes A Ge Company LLC (NYSE:BHI), which began trading July 5 as Baker Hughes, a GE company Class A (NYSE:BHGE). As BHI, it finished on a high, up almost 6% on July 3 to $57.68 per share.
While veteran BHI executives like former CEO Martin Craighead enjoy their golden parachutes (even more than promised under a merger with Halliburton Company (NYSE:HAL) the Obama Administration had scuttled), GE’s Lorenzo Simonelli, an Italian native, today becomes one of the most powerful men in the oilpatch, at age 44.
So, what happens now?
GE Stock: Two Trains Running
GE may now own a majority stake in BHGE, but it’s still two trains running, one under Simonelli and one under Flannery. The train under Flannery looks quite ungainly, since it still has all the engine and power generation units of the older company, attached by money to one of the nation’s largest healthcare equipment companies.
Immelt telegraphed what should be Flannery’s next move by switching the headquarters of the company to Boston, where it broke ground on a new 12-story headquarters building in May. The company’s logo is also going on Boston Celtics jerseys.
As part of the Baker Hughes deal, Immelt also agreed to sell GE’s water and the industrial solutions unit. GE is also selling its lighting business.
That still leaves GE Power, including France’s Alstom, bought for $10 billion in 2015. It could be combined with the company’s other engines businesses and spun-out, possibly under GE Vice Chair David Joyce, which would leave GE as primarily a health care company with a right-sized headquarters.
But would that company still be GE? The name would seem to best fit the power company while Predix, its Internet of Things cloud, could go onto GE Healthcare.
The preceding is all speculation, however. Fun for writers, and even for analysts, but useless to investors who need to focus on what a company is, not what it might be.
What GE Is
GE next reports its earnings on July 21, and analysts are expecting earnings of about $2.2 billion, or 25 cents per share, on revenue of $29.46 billion. That would put it about where it was a year ago, and that is why all these moves are being made.
GE today is a profitable collection of pieces, but lacks growth. That’s why the shares are down 16.4% so far in 2017. But this has brought the yield on the stock up to 3.5%, based on a dividend of 24 cents per share, which was last raised late in 2016.
While growth investors may look askance at the company Flannery is inheriting, those who seek dividend income might want to give GE a second look, because assuming the dividend stays strong, and it has been rising steadily since 2009, you have a bargain.
My own view disagrees with that of our James Brumley, who sees the dividend as threatened. I think it can stay strong, given the fact that Baker Hughes has kept its own dividend through the oil bust, and even kept it level during the financial crisis. Losing it would mean there is no floor under the stock, and Flannery does not want to open his years of power that way.
While everyone else is dumping on GE stock, in other words, investors looking for income might want to heed the words of Barclay analyst Scott Davis and make it a top pick.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this story.
