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Why General Electric Shares Were Up in January

By Lou Whiteman - Feb 5, 2020 at 2:00PM

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The company makes its case that the turnaround is progressing.

What happened

Shares of General Electric (GE 2.37%) traded up 11.6% in January, according to data provided by S&P Global Market Intelligence, as investors cheered the industrial conglomerate's year-end results. Last year was a rocky one for GE, with a critic in August describing the company as "a bigger fraud than Enron," but the company's fourth-quarter results and 2020 guidance went a long way toward reassuring investors that the worst is behind it.

So what

General Electric shares rallied late in the month after the company reported fourth-quarter earnings and sales that came in above analyst expectations. Aviation led the way, with revenue up 6% year over year and orders up 22%, while renewable energy revenue was up 2% and healthcare and power revenue was flat.

A look into the front opening of GE's next generation aircraft engine.

A GEnx engine. Image source: General Electric.

GE also said it expects industrial cash flow between $2 billion and $4 billion in 2020, significantly higher than the $1.2 billion analysts had expected.

It has been a difficult few years for General Electric, which has been trying to dig out of a financial hole caused by poor acquisitions and mismanagement. The company, which has more than $94 billion in total debt, is on its third CEO since 2017, and last summer Bernie Madoff whistleblower Harry Markopolos suggested GE's issues are far worse than what the company has disclosed.

The company and its CEO, Larry Culp, refuted that. And since taking over in late 2018, Culp has been working to streamline operations and sell assets to pay down debt. The company said that GE was able to reduce its net debt by $7 billion in 2019, and intended to continue that push in 2020.

Now what

GE remains a turnaround story, with a troubled power business and uncertainties including how the grounding of the Boeing 737 MAX will affect its aerospace arm. It is hard to predict when, if ever, this company will be able to regain the growth stock status it enjoyed in the 1990s.

But under Culp, it has come a long way toward restoring investor faith, buying the CEO time to complete its turnaround. Shares are still down more than 50% from where they stood at the beginning of 2017, but for the first time in a while, General Electric seems to have momentum on its side.

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