General Electric (NYSE:GE) is one of the oldest and best-known of America’s publicly traded companies. It’s also had one of the most spectacular downfalls this century, with GE stock slumping over 80% since its 2000 highs.
The company’s turnaround attempts — which includes its efforts to reduce its crippling corporate debt and boost GE stock price — have just entered a new phase.
Specifically, GE announced that it has hired a new CFO who will be coming on board in 2020. A specialist at helping companies pay down debt, Carolina Dybeck Happe will have her work cut out for her, as the company is currently saddled with $93.2 billion of loans
By hiring her, GE is looking to strengthen itself and raise the value of GE stock over the next several years (more on that shortly).
GE Announces the Appointment of a New CFO
Dybeck Happe will become CFO in early 2020, GE stock did not appear to react meaningfully to her hiring, which was announced on Nov. 25. GE stock closed up 0.25% on that day. But the long-term impact of the appointment on General Electric stock is expected to be significant.
When it announced Dybeck Happe’s hiring, GE stated:
“She will be a strong partner as we execute our deleveraging plan and improve our operating results to position GE for sustainable, long-term value creation.”
GE was careful not to say she was being brought on board to help reduce the huge pile of debt the company has accumulated. “Deleveraging” is a less scary way of saying “debt reduction.”
Reporting on the announcement, CNN noted that GE still has $93.2 billion of debt, while the company’s balance sheet is “ground zero for its problems.” Dybeck Happe was previously the CFO of Danish shipping giant Maersk, where she lead debt reduction efforts.
How GE Plans to Tremendously Boost GE Stock
Typically, when companies embark on turnaround plans, the prospect of a rising stock price is alluded to, but it’s not usually identified as a specific goal. But in the case of GE, big stock gains are a key part of its plan.
CEO Larry Culp’s contract made news last fall when it was revealed that he will get huge bonuses if he can lead GE stock to a significant recovery. If GE stock price rises by more than 50% by the third quarter of 2022, Culp will get an additional $47 million bonus in the form of General Electric stock. If the shares rise by 150% by that time, he will get $300 million of GE stock. So Culp is very well incentivized to make moves that the market likes.
Culp’s plan to turn GE’s fortunes around haven’t paid off yet for investors. InvestorPlace columnist Will Ashworth pointed out that, even though GE stock has made strong gains through 2019, the price hasn’t risen much versus October 2018, when Culp took over. In fact, until its post-earnings rally at the start of November, General Electric stock was worth less than it was before Culp became CEO
What to Expect From General Electric Stock Going Forward
General Electric hasn’t yet convinced analysts that its turnaround is working. Analysts polled by the Wall Street Journal have an average 12-month price target of $11.53 , only a bit more than 1% over yesterday’s closing price. However, the appointment of a new CFO tasked with shrinking GE’s mountain of debt might sway their opinion. Stay tuned because General Electric’s story will be getting interesting between now and Q3 of 2022, the CEO’s stock bonus deadline.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.