The New York Times “G.E.’s Appliance Deal Gets New Spin” and the press release “GE Announces Its Intent To Explore Strategic Options For Consumer & Industrial With A Focus On Spin-Off” imply that General Electric (GE) is struggling to be considered a growth company. I always thought GE was valued for steady earnings and a reasonable (currently $1.24) 4.5% dividend.
All this portfolio of businesses talk makes me think of a bad mutual fund. I don’t like hearing about changing the mix of businesses just for the sake of improving the overall portfolio’s growth rate. Revenue and earnings growth are more cosmetic than cash flow generation. I would like to see GE run for only one purpose – fat dividends for shareholders. In the current business climate, no financial alchemy will generate growth. Selling slower growing businesses to buy faster growing businesses is foolhardy. Unfortunately, this process is accelerating with CEO Jeffery Immelt.
While I don’t want to see GE selling buggy whips and the move to wind energy is smart, but spinning off Consumer & Industrial makes little sense. GE’s value adding as a conglomerate is in talent development and management science – systems and procedure. How will shareholders be better off with a separate Consumer & Industrial company outside of the discipline of GE?
Certainly the big move into healthcare is hitting the wall of public spending constraints and GE apparently found no appetite for its appliance business in a down housing market. Did selling Plastics increase growth? GE is facing the same reality that Greenspan faced – you can’t continuously maestro yourself into perfection. GE simply has to ride out the business cycle.
45% of GE’s profits are derived from Commercial Finance and Money (consumer finance). The only remix that I can see is splitting GE between finance and all else. Whatever synergies exist between the two distorts the true profitability of the finance operation.
Given no changes in philosophy, I think GE is a reasonable buy at $20 with a 6.2% yield. Forget about growth.
No Disclosures.
All this portfolio of businesses talk makes me think of a bad mutual fund. I don’t like hearing about changing the mix of businesses just for the sake of improving the overall portfolio’s growth rate. Revenue and earnings growth are more cosmetic than cash flow generation. I would like to see GE run for only one purpose – fat dividends for shareholders. In the current business climate, no financial alchemy will generate growth. Selling slower growing businesses to buy faster growing businesses is foolhardy. Unfortunately, this process is accelerating with CEO Jeffery Immelt.
While I don’t want to see GE selling buggy whips and the move to wind energy is smart, but spinning off Consumer & Industrial makes little sense. GE’s value adding as a conglomerate is in talent development and management science – systems and procedure. How will shareholders be better off with a separate Consumer & Industrial company outside of the discipline of GE?
Certainly the big move into healthcare is hitting the wall of public spending constraints and GE apparently found no appetite for its appliance business in a down housing market. Did selling Plastics increase growth? GE is facing the same reality that Greenspan faced – you can’t continuously maestro yourself into perfection. GE simply has to ride out the business cycle.
45% of GE’s profits are derived from Commercial Finance and Money (consumer finance). The only remix that I can see is splitting GE between finance and all else. Whatever synergies exist between the two distorts the true profitability of the finance operation.
Given no changes in philosophy, I think GE is a reasonable buy at $20 with a 6.2% yield. Forget about growth.
No Disclosures.
Posts
0 comments:
Post a Comment