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GE - Work In Progress

Feb. 03, 2019 5:49 PM ETGeneral Electric Company (GE)27 Comments


  • GE ended 2018 on a relative strong note as CEO Larry Culp is making progress with regards to simplification of the business, restructuring and deleveraging.
  • The road of the recovery remains long as much more work remains to be done.
  • I like the moves made by Culp, yet note that based on a reduced footprint, earnings power might be limited to little over a dollar in the medium term.
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GE (NYSE:GE) posted relatively solid fourth quarter results as it is making progress in its simplification process. Shares have seen a big rebound from recent lows as the company is making progress with regards to asset sales and industrial businesses continue to show modest growth. Nonetheless, the road to recovery is long and deleveraging limits earnings potential as well in the longer run. This means that I am looking to sell a small portion of my long position on further jumps in the share price.

About The Results

GE posted a 5% increase in fourth quarter sales to $33.28 billion. GE Capital had a ¨strong¨ quarter with sales up 60% to $2.48 billion, but this is really incidental. Core industrial sales were up 2% to $31.2 billion, in line with the full year growth number.

Strong results were reported by renewable energy with 28% reported growth, yet this is a lumpy business. Particularly impressive is the 21% growth rate reported by aviation and recovery in transposition (+24%), although the latter is merged with Wabtec (WAB) of course. Oil & gas showed 8% growth but this marks a slowdown amidst weaker energy prices in Q4, as a 2% growth rate reported by healthcare is not too impressive as well.

Power remains a big worry with sales down 25% although order intake suggests a growing order backlog. Lighting saw sales fall by 16% as well, yet this is a very small business of course. Added together, the industrial segment reported earnings of $2.62 billion vs. $2.77 billion in the year before. Power was responsible for nearly a billion in reduced earnings power, not offset in its entirety by strong gains in aviation and oil & gas. The capital business lost $86 million an operating basis, as this remains a continued worry. With overall sales growth being modest, it must be said that order intake was pretty solid across the

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This article was written by

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Finding value that gets unlocked in M&A, IPOs and other corporate events
The writer is a long term value investor and M.Sc graduate in Financial Markets with over 10 years experience. Value can be found in both long and short ideas and uses options to enhance the risk-return profile of investment ideas. Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice.

Analyst’s Disclosure: I am/we are long GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Long, but might sell on further moves higher

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