What May Drive GE to 52-Week and Multiyear Highs
General Electric Co. (NYSE: GE) has been the center of much attention over the past month. A few of the developments were that the company had its European acquisition of Alstom approved, Nelson Peltz took a large stake in the company and GE is readying itself for the Synchrony Financial (NYSE: SYF) spin-off.
As a result, the stock is sitting just under a multiyear high. GE could stand to run even further, if it keeps up this solid momentum gained from these catalysts. Now keep in mind that GE’s 52-week high is a high going back to before the dog days of the Great Recession and financial crisis.
The company received approval from European regulators regarding the acquisition of Alstom’s power business in early September. GE secured this deal by agreeing to sell some assets to an Italian rival. This came after eight months of negotiations. It is worth noting that this deal is the largest that GE has ever done.
By selling off and unloading so much of GE’s finance operations, the company will be evaluated more as an industrial conglomerate rather than an industrial conglomerate that is hamstrung by being valued as a bank or finance outfit. GE is hoping for “multiple expansion” here, where the investing community will pay up for a higher P/E ratio.
And speaking of P/E ratios, GE aims to shrink its share float with all the new capital coming in. That will take place via tens of billions of dollars for share buybacks. Ultimately, this could shrink the float by 10% or so.
Nelson Peltz’s Trian Fund Management announced Monday morning that it had acquired a stake of 98.5 million shares in GE, valued at approximately $2.5 billion. In the statement from Trian, Peltz said:
We invested in GE because it is undervalued and underappreciated by the market despite what we believe is a transformation that will allow its world-class industrial businesses to drive attractive shareowner returns.
The sale of GE’s appliances business is expected to close later this year (if regulators allow it), in addition to the spin-off of its retail credit card unit, Synchrony, which went public in 2014.
GE has also indicated that it would be opportunistic for acquisitions. What excites investors is that the commitment is for bolt-on deals rather than large deals. This means that GE and its management won’t need to waste a couple of years trying to integrate a massive entity.
A few analysts recently made calls on GE:
- Deutsche Bank reiterated a Hold rating with a $28 price target.
- Barclays reiterated a Buy rating with a $30 price target.
- Credit Suisse reiterated a Buy rating with a $31 price target.
So far in 2015, GE has outperformed the market, with the stock up nearly 14% year to date. In the past 52 weeks the stock is up 15%. Some investors might think that Chairman and CEO Jeff Immelt didn’t get the stock market memo that went out about a stock supposed to trade lower due to international market weakness. Could GE be back in favor all over again?
Shares of GE were up fractionally at $28.06 early Friday afternoon. The stock has a consensus analyst price target of $29.62 and a 52-week trading range of $19.37 to $28.68.