In previous economic crises, investors would pile into General Electric (NYSE:GE) stock.
It was a symbol of financial strength in the year 2000’s dot-com bomb. It was still a “systematically important” financial institution during the 2008 crisis.
Today, you don’t need GE stock. It’s just another troubled industrial firm.
General Electric opened for trade April 7 at about $7.70 per share. That’s down from a February high of over $13, but up from a March low of about $6. The market capitalization is now about $62 billion.
GE stock no longer has a price-earnings ratio because it no longer has earnings. Its nominal dividend of 1 cent per share now represents a yield of 0.6%.
General Electric Is Still an Industrial Giant
The most interesting thing about GE today is its price-sales ratio. The company had revenue of $95 billion last year, which was more than Dell Technologies (NYSE:DELL). At its present valuation, the price-sales ratio is 0.65.
GE still makes important things. The GE Healthcare unit makes medical devices so, yes, it makes ventilators. Its renewable energy unit, which makes windmills, is now a significant part of the business. The GE Power unit, the center of its past troubles, had $302 million of net income last year.
The star of the show was GE Aviation, which makes jet engines. The unit represented 34% of sales last year.
The Boeing (NYSE:BA) 737-Max scandal slowed the unit in 2019. The novel coronavirus has kicked it to the curb. CEO Larry Culp had to furlough half the staff. This came after laying off 10% of the workers earlier. The union wants to make ventilators, but a jet engine plant is not a ventilator plant. GE Healthcare is increasing ventilator supplies with help from Ford (NYSE:F), ramping up a simplified version of an existing design.
The Balance Sheet Hurts GE Stock
GE stock was taken down by its balance sheet.
Last August Harry Markopolos, best known for blowing the whistle on Bernie Madoff, predicted its opaque balance sheet could sink the company.
Culp has made the balance sheet less opaque, but it’s still a horror show. At the end of December, it showed $91 billion in loans and almost $32 billion in pension obligations. There was also almost $40 billion of exposure to long-term care reinsurance sold under the late Jack Welch in the 1990s. The exposure number is an estimate. It was $35.6 billion at the end of 2018.
The best thing Culp has done for the balance sheet was to sell the biopharma units of GE Healthcare to Danaher (NYSE:DHR). He was Danaher’s CEO before “retiring” to Harvard Business School, from which GE recruited him in 2018. The deal puts $20 billion against the debt.
An analyst from Gordon Haskett thinks GE must still raise more equity capital to stay afloat through the crisis. An equity raise would water down existing shareholders.
Despite GE’s improved balance sheet, its latest debt offering costs more than the one it replaced. This comes at a time when banks are getting money for nothing.
The Bottom Line on General Electric
GE today reminds me of the Spirit of St. Louis, overloaded on the runway, fighting to get over the trees and fly to Paris.
I root for it. GE is a big exporter, a famous name in business history.
I disagree with InvestorPlace’s Larry Ramer, who recently called GE a good long-term play, believing another equity raise won’t be needed. GE stock could rise substantially if we’re through the worst of the pandemic.
But this is a time for you to do triage, not reach for value. As InvestorPlace analyst Matt McCall recently wrote, GE is too speculative right now for long-term investors. There are better plays out there, companies with strong balance sheets and brighter prospects. Companies like Dell.
Root for GE stock from the sidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
