General Electric’s stock rose slightly on Tuesday, Oct. 9, as the appointment of new Chief Executive Officer Larry Culp and the write-down of $23 billion of GE Power goodwill is likely to be the last of a series of transformation announcements and sets the stage for a new chapter in its turnaround, according to William Blair.
It struggled on Monday, October 15, as many stocks began to rebound from last week’s steep drop as a result of Federal Reserve Bank uncertainty. But on Tuesday, October 16, General Electric shares rose on the strength of a Iraq Power-Generation Deal, that had GE beating out rival Siemens for a contract to supply 11 gigawatts of power-generation equipment to Iraq, a deal worth about $15 billion, according to a report in the Financial Times.
The Boston-based industrial announced last week that Culp was replacing John Flannery at the helm of the beleaguered industrial conglomerate, which sent the stock soaring. Under Flannery, GE sold billions of dollars in assets, cut the dividend in half and reshaped the portfolio to focus on aviation, power and renewables. Troubles in the company’s power unit, however, plagued Flannery throughout his 13 months as CEO. Still, Culp remains “committed to strengthening the balance sheet,” including deleveraging, in order to “unlock the value of GE.”
In an Oct. 9 research note, Nicholas Heymann estimates that the company’s Sum Of The Parts (SOTP) valuation, without assuming value for GE Power, could be 7% to 23% above the current share price, which equates to approximately $14.60 to $16.78 per share. If GE Power were assumed to be worth its $48 billion book value, GE’s SOTP valuation might be closer to $20.10 to $22.30 a share, Heymann said. Shares of GE rose 0.8% to $13.72 at 11:30 a.m. New York time.
With Culp at the helm, the company now moves into phase two of its turnaround, which focuses on risk reduction, specifically debt reduction, resolution of pending litigation and government oversight investigations and significant, material reductions in pension and retiree benefit underfunding as well as underfunding for long-term healthcare reinsurance at GE Capital. Heymann expects GE to move to phase three, which is the return to growth, in 2019 and beyond.
On October 1, in a surprise move , GE announced that CEO John Flannery was out after a little more than a year on the job. Early this year, Culp was named to GE’s board of directors. He was sought after because he has experience with corporate turnarounds, has strong ties to Harvard College earning an MBA and is a senior lecturer there, as well as several high-profile companies.
In taking on the role, Mr. Culp had stated, “GE remains a fundamentally strong company with great businesses and tremendous talent. It is a privilege to be asked to lead this iconic company. We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency. We remain committed to strengthening the balance sheet including deleveraging. Tom and I will work with our board colleagues on opportunities for continued board renewal. We have a lot of work ahead of us to unlock the value of GE. I am excited to get to work.”
