General Electric (NYSE:GE) may finally have said good-bye to the $7-8 trading range. Its CEO restored investor confidence by succinctly listing out his observation on business strength and opportunities for improvement. The fewer unknowns gave the stock a lift back to the $10 range. Asset sales and debt reduction could probably keep the stock at this level.
Strength in aviation and health-care, along with strong liquidity puts the company in a good position to steady its business. Liquidity of over $30 billion in cash will remove any doubt the company will face a cash crunch.
Leverage is higher than it should be. Management is committed to de-levering the Industrial and Capital balance sheet. Alstom, the power unit, continues to be a challenge.
Action plan
GE’s primary task is de-levering its balance sheet. Reducing the dividend cut $4 billion. Speeding up the sale of BHGE will bring in $4 billion and the modified transportation deal will add $2 billion. More recently, GE’s settlement with the DOJ regarding the FIRREA investigation of WMC will cost $1.5 billion but also removes an unknown.
Looking ahead, GE will sustain its credit rating in the A range and will keep its net debt / EBITDA to below 2.5 times.
Takeaway
GE is barely above the $10 range and could face some short-term profit taking. It needs another quarter of results that show debt levels are falling and costs are shrinking.
