General Electric (NYSE:GE) announced a reverse stock split, with eight shares turning into one. Since the mid-June announcement, GE stock has gone nowhere.
GE hoped to capitalize on a stunning comeback, the share price doubling as CEO Larry Culp’s turnaround plan seemed to take hold. This included a fat profit of $2.5 billion for the December quarter, which helped cut debt from $73.6 billion to June’s $62.3 billion.
GE even made a small acquisition, a Swedish start-up called Prismatic Detectors.
But progress has slowed. GE has yet to report any net income for 2021, although it did have $516 million in operating cash flow during the June quarter. This will never be your father’s — or your grandmother’s — General Electric again.
Healthcare Is Driving GE Stock for Now
The old GE was a post-industrial giant. Its GE Capital unit was a “systemically important financial institution” during the Great Recession, alongside banks like JPMorgan Chase (NYSE:JPM). It was famously lampooned by actor Alec Baldwin on NBC’s 30 Rock (it owned the network) for its complex management style.
Former CEO Jeff Immelt, who took over at the time of the Sept. 11 attacks, took that company apart. He sold NBC, used GE Capital as a piggy bank, and made ill-timed acquisitions in energy and power, covering up the financial damage with accounting. (GE eventually paid a $200 million penalty.)
By the time Culp was hired, from Harvard Business School, GE had lost its place in the Dow 30 and was in free fall. Bankruptcy was possible.
Culp focused on turbines for wind farms and huge engines, including jet airplanes. He kept GE Health, but sold the most profitable bits to his former employer Danaher (NYSE:DHR). He also focused on free cash flow. GE could deliver $3.5 billion-$5.0 billion of it this year. Its market cap is about $116 billion.
Its healthcare that is driving the train. GE Healthcare is best known for heavy equipment like the CAT scanners used in hospitals. It’s growing at 10% per year, with margins of 18%. The hope is that the turbine-related units will follow and make it carbon neutral by 2030.
Power Remains a Problem
GE Power, which nearly took the whole company down, remains a problem.
Immelt famously bought Alstom, the French motor company, for $10 billion in 2015. He called it the best deal GE had done in a century. Now much of GE Power, called the Steam Power division, may be going back to EDF, majority-owned by the French government, for just $1.2 billion.
This would finally make GE appear forward-looking, a growth portfolio of wind power, jet engines, and big healthcare machines. GE still has its Research unit, which can deliver press releases by studying a system for capturing carbon dioxide and working on “exascale” computing.
Culp also remains a deft healthcare executive. That unit is working with Wipro in India on a remote monitoring solution for Covid-19 patients. This year Culp quietly bought Zionexa, which makes a molecular imaging agent used in breast cancer diagnosis.
The Bottom Line
GE stock under Culp is not a sexy investment.
It is making progress reducing its debt. But it will never be the giant it once was. That wasn’t Culp’s charge when he became CEO in 2018.
Culp’s job was to save the company. For this he has been richly rewarded. Even though he failed to meet his pay packet’s original goals, the goals were simply cut in half. He took a $124 million stock payout, making him one of 2020’s highest-paid executives.
That’s the part of the old GE that remains. Executives still get millions, shareholders still get crumbs.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at email@example.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.