Larry Culp saved the company and has reaped a $47 million reward for it. GE was the best-performing industrial stock during the fourth quarter of 2020.
But Culp’s honeymoon is over. Workers are seething that the bonus came after targets for earning it were negotiated down. Culp can now earn $230 million if the stock gets to $16.68. (Critics call it Giannis Antetokounmpo money for Kostas Antetokounmpo performance.)
GE stock is trading at $11.30 per share. That’s a market cap of $92 billion on what should be $83 billion of 2020 sales, a price-earnings ratio of 29x. After trading as low as $6.25 in late September, it’s out of the bargain bin.
But is it worth buying?
Culp’s General Electric consists mainly of four businesses. Two of them, health care and aviation, make money. The others, both involved in energy, don’t.
All are true industrials. GE Power makes gas turbines. GE Aviation makes jet engines. GE Renewable Power makes wind power platforms, as big as two football fields.
But it’s GE Healthcare that drives the train. The unit earned $2.21 billion in the first three quarters of 2020. Without it, GE would have been operating at break-even last year. Healthcare’s success was underlined by Culp’s first acquisition, Prismatic Sensors of Sweden, in November.
Before coming to GE, which recruited him from the Harvard Business School, Culp had been CEO of Danaher (NYSE:DHR), which he made a health care giant through acquisitions. Danaher is now worth $158 billion, 72% more than GE. It’s that hope that got him the renegotiated contract. Like Giannis, he’s thought a talent you can’t risk losing.
Still, TV analyst Jim Cramer considers GE a buy. He likes the deals, he likes Culp. The Milwaukee Bucks and his bucks have something in common. Moreover the end of the pandemic should improve results at GE’s lagging businesses, leading to bigger profits this year and next.
Is GE Stock Overbought?
GE is no longer playing games with the books, and it’s no longer making stupid acquisitions. But it still plays the PR game. It’s making grand statements about climate change even as it sells deals for giant fossil fuel power plants.
Huge wind turbines shouldn’t obscure the fact that GE is still an energy company. It won’t be completely out of Baker Hughes (NYSE:BKR), the oil field services outfit it bought in 2017, until 2023. It laid off 13,000 at GE Aviation in the spring, one-fourth of the staff. It may still cut further.
All this reduces the potential upside for 2021. Culp’s chopping-and-changing in 2020 only got the stock back to where it started the year. GE is more overbought than it has been in decades.
The Bottom Line
In the CEO league Culp is indeed a Giannis. He’s the reason to buy GE stock. Without him, the company is a mediocre collection of parts. With him, it has hope.
GE may also get value soon from GE Digital, a relic from the bad-old days of Jeff Immelt. It’s the company’s play in the Machine Internet, sensor systems that will make equipment more resilient, less prone to breaking.
Immelt had GE playing both sides of the energy game, all-in on bigger power demand, all-in on efficiency and renewable energy. That contradiction is slowly fading away. Bigger demand should be a tailwind.
Just remember before crowning Culp, which Antetokounmpo brother is wearing a championship ring. It’s Kostas, who got his recently with the Los Angeles Lakers.
A good company is more than its leader.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/. At the time of publication he owned no shares in companies mentioned in this article.