Summary
- General Electric is becoming more manageable by streamlining its operations via asset sales and spin-offs.
- The company's balance sheet should be strengthened considerably by 2020, assuming the expected asset sales and spin-offs occur.
- General Electric could be positioned as a growth stock in 2020 led by its Aviation and Healthcare Divisions.
General Electric (GE) could be a very different company entering 2020, assuming all of the announced transactions are completed. The announcement of the sale of just a portion of the Healthcare Division to Danaher (DHR) for $21 billion, plus the assumption of some pension liabilities, dramatically accelerates General Electric's transformation to a more streamlined company with a much healthier balance sheet. The sale of the BioPharma unit demonstrates why General Electric needs to breakup as a conglomerate, because no one can manage such a diverse set of companies and no analyst can understand what all of the assets are actually worth.
The news could get even better for General Electric as CNBC is reporting they are seeking a buyer for GE Ventures. This is a collection of more than 100 startup companies in an array of diverse fields from energy, to healthcare, to software, etc., etc. General Electric has hired Lazard to find a buyer for all of the startup ventures as a group. If a buyer is found it could be a nice upside surprise for the firm and help it further strengthen its balance sheet. How many GE shareholders are even aware the company had this venture capital arm to sell?
General Electric made solid progress in the first quarter in its restructuring efforts. Here is a look at a portion of the first quarter income statement from the company's 10-Q:
GE Aviation and GE Healthcare continue to perform very well with strong combined profits before tax of $2.441 billion. While the Oil & Gas Division returned to profitability, investors need to remember this business is cyclical. General Electric still plans to reduce its stake in the Oil & Gas Division over time by selling its shares of Baker Hughes General Electric.
