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Why General Electric Stock Jumped Nearly 10% at the Open Today

By Reuben Gregg Brewer – May 27, 2020 at 11:02AM

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The conglomerate's turnaround effort took another (small) step forward with the sale of an iconic division.

What happened

Shares of industrial conglomerate General Electric (GE -1.81%) rose swiftly out of the gate on Wednesday, gaining a touch over 9% in early trading. Although the stock gave back some of that gain by 10 a.m. EDT today, it remained higher by around 5%. The big news driving the sharp gain was that GE will be selling its lighting division to Savant Systems.   

So what

Basically, GE has been struggling to turn itself around since the Great Recession. The troubles have been particularly acute over the last few years, with two CEOs getting ousted in a very short time. Current CEO Lawrence Culp appears to have gotten things moving in the right direction again, but the effort has involved a lot of restructuring and asset sales. The latest move was to jettison the company's lighting business, a division that once sparked the tagline "GE: We bring good things to light" in a memorable advertising campaign.

A woman pointing to a lit chalk lightbulb above her head

Image source: Getty Images.

The 130-year-old division has around 700 employees. Although financial details of the transaction were not provided, The Wall Street Journal reported that "a person familiar with the matter" pegged the price tag at around $250 million. Savant and GE will also sign a long-term licensing agreement for the use of the GE name.

Although not a huge deal for GE, it will allow the company to focus on its core industrial infrastructure businesses. With the power and renewable energy divisions both posting negative profit margins in the first quarter, that's probably a good thing. GE's leadership needs all the focus it can get as it continues to steer this one-time industrial icon toward calmer waters.   

Now what

GE has been trying to unload the lighting division for several years, so it's not surprising that investors bid the shares higher. That said, it is not a game-changing move by any stretch of the imagination. Long-term investors should view this as GE more or less cleaning up loose ends. Indeed, the company still has a lot of work ahead of it before the turnaround can be called complete. 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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