General Electric Company (NYSE: GE) stock gained 6.1 percent on Tuesday after the company unveiled its plan to divest GE Healthcare and its stake in oil services company Baker Hughes ( BHGE). Analysts say hitting GE’s $20 billion divestiture target is a good first step in the right direction, but management needs to execute a clear turnaround plan for the company’s core remaining business before long-term investors can can feel comfortable buying the stock.
In a statement, GE CEO John Flannery says GE will focus on improving its balance sheet and becoming a smaller, more efficient company.
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“We are aggressively driving forward as an aviation, power and renewable energy company — three highly complementary businesses poised for future growth,” Flannery said.
The new strategy is similar to a previous restructuring plan GE announced in November 2017 when it said it would be focusing on core businesses of power, health care and aviation.
“We are confident that positioning GE Healthcare and BHGE outside of GE’s current structure is best not only for GE and its owners, but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future, while carrying the spirit of GE forward,” Flannery says.
GE says it will be maintaining its current quarterly dividend payment for the time being but will be reassess following the health care spin-off. GE previously cut its dividend by 50 percent in November.
Even after Tuesday’s gains, GE stock remains down more than 50 percent in the past year, and GE was recently booted from the Dow Jones industrial average after more than a century of membership.
Bank of America analyst Andrew Obin says investors need more details on the divestiture plan and on the company’s long-term strategy for its three remaining segments, particularly its struggling power segment. He says GE’s upcoming earnings report expected out in late July will be critical.
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“We think results should provide an update on operating turnaround and getting better visibility on any sign of stabilization in Power,” Obin says. “However, the company is unlikely to provide an update on its strategy, as we think management is deliberately taking time to be more diligent with internal review before rolling out new milestones to the Street.”
Bank of America has a “neutral” rating and $17 price target for GE stock.
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Divestiture Is a Good First Step For General Electric Company (GE) Stock originally appeared on usnews.com
