Short seller Jim Chanos told CNBC he has a short position in General Electric (NYSE:GE), and the stock rose. GE stock opened at about $83.60 per share on Feb. 23 with a market capitalization of more than $91 billion.
It spun out its healthcare division on Jan. 4 as GE Healthcare (NASDAQ:GEHC) and will separate its aerospace and energy divisions next year. Chanos called the remaining parts of the former Dow Jones company overvalued.
Short the Breakup
GE CEO Lawrence Culp announced the company would break into three parts in November 2021. Culp will eventually move to the aviation business, which makes jet engines.
Culp became CEO of the struggling conglomerate in 2018 after building Danaher (NYSE:DHR), a health care conglomerate, and teaching at the Harvard Business School. Since the breakup was announced, GE shares are down about 25%. Since the start of the year, GE has risen 27% and GEHC is up 32%.
Chanos has called the whole market overpriced, believing stocks are pricing in a “Goldilocks scenario” with rising earnings and a Federal Reserve turnaround on rates.
GE reported net income of $2.3 billion, or $1.82 per share fully diluted, and revenue of $21.8 billion for its last quarter before the breakup. Adjusted earnings under generally accepted accounting principles were $1.24 per share. Culp said the remaining company, absent Healthcare, could double earnings this year to $1.60 to $2 per share with free cash flow of $3.4 billion to $4.2 billion.
While Chanos was issuing his bearish call, Bank of America said GE Aerospace could win a piece of the Defense Department’s request for new engines on its F-35 fighter jets. Raytheon Technologies (NYSE:RTX) currently has the contract.
What Happens Next for GE Stock?
Culp laid out a rosy future for his company after a single successful quarter. For all of 2022 the company lost $6.53 billion, or $2.65 per share, and the outlook for energy is uncertain. But if the worst is truly behind GE stock, Chanos may be the biggest loser.
On the date of publication, Dana Blankenhorn did not hold (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.
