This week marked an important anniversary for General Electric (NYSE:GE). It’s been a year since Larry Culp joined the company as CEO, making him the first outside hire in 127 years. At the time, GE stock had declined 59% in the previous two years.
Culp’s hiring was significant because it gave investors a sense of renewed hope in the fledgling stock. Culp had earned a reputation for being an outstanding leader through his previous work at another organization.
However, company turnarounds take a long time. General Electric is down a further 23% since he came aboard. The company’s 119-year-old dividend was slashed to a penny within days of Culp’s arrival, stunning analysts and further infuriating GE stock holders who were holding on.
What’s ahead? Here are four takeaways for GE stock going forward.
Analysts Still Aren’t Sold on Culp as a Savior CEO…
Some analysts still aren’t sold on Culp leading GE’s turnaround efforts. The average analyst consensusis that the stock is a hold. And last month, JP Morgan analyst Stephen Tusa reiterated his sell rating and $5 price target for the stock.
Tusa said the company is light on details when it comes to reporting its earnings and guidance going forward. According to Tusa, company management is bullish in its reports on GE’s progress but doesn’t offer any real explanation on improvements the company is making.
… While He has Activist Nelson Peltz’s Support
Tusa may not have much confidence in Culp but activist investor Nelson Peltz does. Recently, Peltz said he thinks Culp is doing a great job and referred to him as “a star.” Peltz’s hedge fund, Trian Partners own a major stake in GE as well as holding a board seat.
This is good news for General Electric because Peltz has a long history of investing in companies and aiding in these types of turnaround efforts. But it’s especially good news for Culp because a CEO will always benefit from having a board member sing their praises.
Chipping Away at Debt
When Culp took over, one of the priorities was paying down GE’s large debt burden. The company has been steadily making progress in this area over the past year. This started when the company sold off its Biopharma business to Danaher (NYSE:DHR), Culp’s former employer.
And most recently, the company gave up its majority stake in Baker Hughes (NYSE:BHGE). This will reduce a lot of GE’s debt load in the coming years.
GE Stock Needs New Growth Opportunities
And finally, GE stock needs to have new growth opportunities boosting it to truly turn things around. So far, Culp is doing this by investing in aviation, which shows a lot of promise in the coming years. The company also has myriad opportunities available in health care and energy, but those these business segments will take a while to develop.
Overall, headwinds still remain for General Electric stock. The grounding of the Boeing 737 max continues to hurt the stock and questions remain about other segments of the company’s business. Despite the shares’ decline, GE is undoubtedly better off than it was a year earlier.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
