It’s hard to ignore the remarkable turnaround unfolding at General Electric (NYSE: GE). This article aims to dissect GE’s significant investment potential, underscored by its hefty cash reserves and aggressive financial strategies. With a history mired in skepticism from jaded investors, GE’s new maneuvering offers a breath of fresh air and renewed confidence. The pivotal question: Is now the time to bet on GE?
For those new to GE, the scars of the 2009 financial crisis might be just tales of yore. However, for seasoned investors, the bitter memory of GE’s infamous dividend cut—slashing it from 31 cents per share to a mere 10 cents—still resonates. Yet, there’s palpable excitement now as GE revamps its financial gears. The recent $6.5 billion dividend from GE Capital to the parent company marks a substantial buffer and heralds promising returns, even if the initial market response was tepid.
Investors might have been indifferent to this announcement, dismissing it as a drop in the bucket. However, for the unblemished investor with no scars from past financial turmoil, like myself, GE’s strategy of harnessing its vast cash reserves presents an intriguing opportunity. CEO Jeff Immelt’s words in the 2012 annual report resonate well, emphasizing “dividends” and “buybacks” as crucial components of GE’s vision to win back investor trust.
GE’s history during the financial crisis is a bleak chapter. Dividend cuts and immense losses painted a grim picture, stoking deep-seated resentment among investors. Fast forward to today, the narrative is shifting. Comparatively, the current financial landscape showcases a more resilient and strategically agile GE. Despite lingering skepticism, new investors might find this an opportune entry point to capitalize on GE’s resurgence.
Editor's Note: Analysis and insight for this article were originally sourced from our friends at InvestorPlace
Generous dividends are more than just a financial reward; they signify a firm’s commitment to returning value to its shareholders. By my math, GE has enhanced its dividend by approximately 0.3 cents monthly since the last 10-cent payout in June 2010. Such a promising trend could see GE reaching 31 cents per share by the end of 2016, or possibly sooner given Immelt’s intent to shrink GE Capital’s assets through sales or IPOs.
| Category | Rating/Value |
|---|---|
| Consensus Rating | Overweight (4.33/5) |
| Average Price Target | $14.13 |
| Potential Gain | 24.1% |
| Number of Ratings | 17 |
Analysts are overwhelmingly bullish on General Electric, with a consensus rating of Overweight. The average price target of $14.13 suggests a potential gain of 24.1% from the current price. This optimism is likely driven by GE’s efforts to transform its business, including the spin-off of its healthcare unit and the simplification of its corporate structure. Additionally, analysts expect GE’s aviation and power segments to benefit from the recovery in the global economy.
Sources: TipRanks (based on 17 analyst ratings), Yahoo Finance, Bloomberg
In conjunction with dividend growth, GE’s stock repurchase program has been robust. Launching significant buybacks since 2010, GE has effectively reduced its outstanding shares, subsequently boosting earnings per share (EPS). Industry insiders aren’t just guessing at EPS growth; they predict a whopping 14% increase for 2013 alone, primarily fueled by these buybacks. It’s a modern financial strategy, driving more value through share reduction than through organic revenue growth.
Indeed, blue-chip companies are buying their way to success by unloading massive cash reserves. Of the S&P’s operating earnings growth between Q3 2011 and Q1 2013, nearly 60% came from corporate buybacks rather than organic growth. This new “R&D” approach of repurchases and dividends underscores how GE is leveraging its cash for optimal shareholder returns.
GE Capital’s substantial $6.5 billion dividend isn’t just a financial safety net; it’s a testament to GE’s liquidity and fiscal discipline. CEO Jeff Immelt’s plan to trim GE Capital’s assets and possibly spin off segments via IPOs is a strategic move to redirect capital towards core industrial strengths. This optimized capital allocation fortifies GE’s financial stability, ensuring sustainable shareholder returns.
GE is vigorously aligning its capital allocation strategies to support this transformative journey. Immelt’s blueprint for GE includes shrinking GE Capital’s asset base by up to 25%, intensifying the focus on industrial strength. This streamlining means improved agility and a focus on high-growth areas, enhancing GE’s financial health and value proposition.
Under Jeff Immelt’s leadership, GE is undergoing a significant corporate realignment towards becoming a leaner, meaner machine. The aim? To streamline its diverse industrial arms, balancing its portfolio, and creating a more resilient, focused business model. This restructuring is more than just cosmetic; it’s a calculated effort to set GE up for long-term growth and enhanced market competitiveness.
This process of reshaping is not without its challenges. However, GE’s goal is clear: to emerge as a more balanced and efficiently run entity. This vision of a nimble, competitive firm, keen on maximizing shareholder value, makes a compelling case for long-term investors. With strategic sell-offs and potential spinoffs, GE is both trimming excess and fertilizing growth potential.
GE’s journey from the rut of financial decline to a beacon of investment promise is both exciting and monumental. Its aggressive dividend growth, significant buybacks, strategic asset trimming, and corporate realignment reflect a company on the brink of a renaissance. For those seizing the moment, GE stands out as a revitalized, promising opportunity primed for substantial returns.
Buck the trend of dwelling in past regrets. Trust in GE’s reinvented, robust strategy and strong cash position. The next big thing might just be an old giant, reawakening with more vigor than ever before.