GE Upgraded to Buy on Strategic Restructuring Initiatives
On Sep 24, Zacks Investment Research upgraded diversified conglomerate General Electric Company (GE) to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold) largely due to its ongoing strategic restructuring initiatives in order to focus more on core industrial businesses. The stock is currently trading at a forward P/E of 15.6x and has long-term earnings growth expectation of 7.6%.
Why the Upgrade?
General Electric recently inked a definitive agreement with premier electronics manufacturer Electrolux AB to divest its appliance unit for $3.3 billion. The GE Appliance segment sells and services major home appliances including refrigerators, freezers, electric and gas ranges, cook tops, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners, and residential water systems under the GE Monogram, GE Cafe and Hotpoint brands. The segment also includes a much smaller lighting business that is not being considered for sale.
General Electric had earlier exited the media business and increased its investments in key industrial businesses through restructuring, state-of-the-art technology, and R&D initiatives. The company also won the unanimous approval in June this year from French conglomerate Alstom to acquire its Power and Grid businesses in a $16.9 billion deal. Power & Water is one of the high-growth, high-margin industrial segments of General Electric and is integral to its core businesses that include Oil & Gas, Power, Aviation and Healthcare.
In addition, General Electric spun off its consumer-lending arm Synchrony Financial (SYF) in an initial public offering (IPO) in July as the first concrete step to shrink its finance business by 2015. The strategic move is arguably the biggest step in restructuring GE Capital’s portfolio to shield the parent company from intense market volatilities that plagued the market during the 2008-09 financial crisis. The spin-off will realign the corporate strategy of General Electric to a manufacturing-based entity with emphasis on big-ticket items such as medical equipment and scanners.
With such strategic moves, General Electric expects operating earnings from its industrial business to aggregate 75% of the corporate operating earnings by 2016. We remain impressed with the focused attempts of the company to restructure its portfolio.
Other Stocks to Consider
Some other stocks in the industry that also look promising include ITT Corporation (ITT) and Carlisle Companies Incorporated (CSL), both carrying a Zacks Rank #2 (Buy).
Read the Full Research Report on ITT
Read the Full Research Report on GE
Read the Full Research Report on CSL
Read the Full Research Report on SYF
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