It wasn’t that long ago when shares of General Electric (NYSE:GE) were hovering around $5 per share. Since that time, the stock has rallied. In fact, heading into the last month of 2019, the stock has climbed to over $11 per share making it one of the best performing stocks of 2019.
Considering many investors had left the stock for dead, it’s no wonder some investors are beginning to think now is the time to buy.
However while not doing more harm seems to be raising the floor for General Electric, will that equate to a higher ceiling?
Analysts Project a Range of Outcomes
General Electric continues to be a polarizing stock. The good news is the majority of analysts that cover the stock continue to give it a “buy” rating. However, the consensus price targets range from $5 to $14. Let’s put that $9 spread into context. The typical bull-bear spread for a stock listed in the Dow Jones Industrial Average is about half as much.
Furthermore, research by Barron’s shows that many analysts were unlikely to change their bullish or bearish outlook. Only two analysts changed their rating in the past year. Yet the stock has had a 52-week high and low ranging from $6.40 to $11.84.
And a recent survey by CNBC and FactSet showed General Electric was one of the stocks Wall Street found most controversial.
One of the reasons for the controversy is that investors are questioning the company’s ability to execute its turnaround plan.
Larry Culp Is Following Through
General Electric has perplexed investors with its lack of direction. But it has also vexed investors with a lack of transparency. For too long, the company over-promised and under-delivered. Enter Larry Culp.
Culp made a name for himself as CEO of Danaher (NYSE:DHR). Although General Electric has been on a roller coaster ride this season, investors seem to be getting more comfortable with Culp’s management style. That style includes simply delivering on investor expectations.
One example is beating earnings estimates. For the first three quarters of 2019, General Electric has beaten analysts’ consensus estimates in each quarter. This was a point of contention with investors who had seen an uneven performance in previous years.
But investing can be a “what have you done for me lately?” proposition. And in that regard, General Electric still has work to do.
GE Healthcare Crystallizes Investors’ Concerns
When Culp took the reins at General Electric, GE Healthcare accounted for $20 billion (or 16%) of the company’s annual revenue. But more significantly, it accounted for 36% of operating profit. Much of that revenue came from a division that served the high-flying biotech industry.
One of Culp’s first moves as CEO was to strike a deal to sell that biopharma division to his former company, Danaher. The sales will provide the company with approximately $21 billion that it can use to pay down its debt. But it will also take away GE Healthcare’s fastest growing business.
This will leave General Electric with a slower growing industrial business that primarily makes MRI machines, CT scanners, X-ray systems and ultrasound devices.
Investors viewed GE Healthcare as an ancillary part of General Electric’s business. But Culp is now positioning it as one of the company’s core pillars moving forward. To that end, the company spent Monday, Dec. 3 educating investors about the division’s future plans.
At least one investor thinks that may be a tough sell. “The perception is that the remaining health-care business, which is very large, is slow growth,” said Nigel Coe, analyst at Wolfe Research. Going into the presentation, Coe said he would be listening for details on how the health unit plans to increase sales, market share and profit margins.
What’s Next for General Electric?
In 2020, investors will begin to get a clearer picture of whether Culp’s turnaround plan will start to bear fruit. Although Monday was a light trading day, the stock did not get an initial bump from the Healthcare Investor Day.
If I’m a growth investor, I’m not sure that the absence of bad news is enough to keep the stock growing at the same pace as it has in 2019. And since General Electric recently cut its dividend, it would seem that the stock may want to move income investors to the front of the line.
At $11 per share, there’s no pressure to take a wait-and-see approach.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.