what happened
It was a busy day of announcements for General Electric (NYSE: GE), and investors generally do not like what they have heard. Shares in GE declined 6% on Wednesday morning on disappointing guidance for 2021 and GE’s steps to restructure itself after years of underperformance.
Approximately
Larry Culp was appointed CEO in October 2018 with a mandate to reverse a chip that has lost more than 75% of its value since its heyday. Its initial efforts were largely well received, and in an investor presentation Wednesday, the transformation into hyperdrive.
GE has confirmed plans to sell GECAS, its aircraft rental industry AerCap Holdings (NYSE: AER) in exchange for a 46% stake in AerCap and about $ 24 billion in cash. That money will be used to pay off debt, which will help a lot to heal the company’s balance sheet.
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The company hopes to reduce its net debt to 2.5 times earnings before interest, tax, depreciation and amortization (EBITDA) over the next few years. GE is also planning a one-for-eight reversal of shares to reduce the number of outstanding shares, reflecting the shrinking footprint.
Now what
GE is making the right moves, but the transformation is not going to happen overnight. The company said it sees adjusted earnings of $ 0.15 to $ 0.25 per share in 2021, but shy away from analysts’ consensus expectations of $ 0.26.
After years in the desert, the company is finally back on investors’ radar screens. GE shares have more than doubled since the end of September. We saw signs on Wednesday that Culp’s plan was driving the company in the right direction, and we received a reminder of how long it was going to take to get there. Given the way the stocks have climbed, it is not surprising that investors are making a profit after the update.
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