This morning brought big news to Wall Street. General Electric (NYSE:GE) is a noted titan of industry, a former manufacturing giant that has expanded into many other areas. This is likely what has led it to split from one conglomerate into three smaller companies. GE announced today that it would be forming three smaller, publicly traded companies, operating in the aviation, healthcare and energy sectors. Since the news broke, many investors are wondering what the General Electric split will mean for them.
What does the future look like for GE stock as the company prepares for this massive shift in operations? It has been a good year for the company, whose shares are up 36% year to date, 7% for the past six months and 10% for the week.
Today’s news has GE stock up 5.4% in less than two hours of trading. This decision comes, though, after years of the stock underperforming.
What else should investors be thinking about in anticipation of the General Electric split? Let’s find out.
What the General Electric Split Means for GE Stock
- Earlier this season, GE engineered a reverse stock split, reducing outstanding shares in order to elevate their value. This technique has been described as “accounting sleight of hand” as it doesn’t actually create any new value for shareholders. The General electric split has been met with considerably more approval so far.
- Its vision includes a “pure-play company at the center of precision health,” created by a “tax-free spin-off of GE Healthcare.” The energy play will be a combination of GE Renewable Energy, GE Power and GE Digital. It intends to launch them in 2023 and 2024, respectively.
- With these two spinoffs, GE will function as an aviation-centric company with a focus on developing innovative flight technology. CEO Lawrence Culp will remain at the helm.
- GE sees this shift as being in the best interest of its shareholders, maintaining that it will better position it to create value for them through long-term, sustainable growth. The company believes that the split will lead to “tailored capital allocation decisions in line with distinct strategies and industry-specific dynamics.”
- According to CNBC, the decision to split into three companies has been met with praise by Wall Street analysts, who have recognized growth potential in each of the sectors.
- Despite GE stock’s underperformance throughout recent years, some analysts have been impressed by its performance this year. InvestorPlace analyst Louis Navellier recently noted that a turnaround was possible in the near future.
- William Blair analyst Nick Heymann, an expert on GE stock, thinks that all three companies can successfully function independently and that the General Electric split is coming at an opportune time for investors.
- GE still has considerable debt but it plans to use the funds generated by the recent sale of its aviation processing unit to work on paying them down. According to Culp, the GE Energy spinoff will have the least debt of the three.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.