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Are Bulbs Brightening at GE?

By David Smith - Updated Apr 5, 2017 at 8:05PM

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There was room for optimism in the big conglomerate's new strategic outlook.

Lately, it seems like General Electric (NYSE:GE) hasn't been able to bring any good things to life for investors. But the company's latest strategic update suggests that there may be a bright light (bulb) at the end of the tunnel for the struggling conglomerate.

Of course, investors would have liked to see something positive sooner from GE; shares have dropped by about 60% from their 52-week high. And at first, you'd think that an update that only promises to meet the low end of analyst expectations wouldn't really draw that much optimism. Yet this morning's announcement was good for a 10% pop in afternoon trading.

Let's look at some of the highlights from the update:

  • With the company's finance arm, GE Capital, near the epicenter of the financial crisis, management is "taking a number of tough, but prudent actions to make GE Capital safer, stronger and more secure during this financial crisis." Those may include pumping $5 billion of additional capital into the unit.
  • GE Capital's earnings will fall from $9 billion this year to about $5 billion in 2009, with its share of total GE income dropping from 40% to 30%.
  • The company seeks to maintain its dividend at least through next year.
  • GE will take a restructuring charge of $1 billion to $1.4 billion.

The news didn't just draw a positive response from investors. Rating agency Moody's (NYSE:MCO) responded to the steps to shore up GE Capital by affirming the company's top AAA credit rating with a stable outlook, meaning that Moody's doesn't expect to have to downgrade GE anytime in the next year to 18 months.

Of course, General Electric generates its $185 billion in annual revenue from a wide variety of businesses. As an industrial company, it has links to energy, aviation, appliances, and technology, competing with the likes of Siemens (NYSE:SI), United Technologies (NYSE:UTX), and Dresser-Rand (NYSE:DRC).

Nevertheless, given the scope of the current credit crunch, which has adversely affected such big financial institutions as Citigroup (NYSE:C) and Goldman Sachs (NYSE:GS), most eyes have lately been affixed to the GE Capital division.

While GE's update left investors with plenty to be concerned about, my take is that management is adopting enough positive steps to make the company's picture brighter than it has been.

GE has been granted four stars by Motley Fool CAPS players. Why not add your rating on the big company?  

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Fool contributor David Lee Smith doesn't own shares in any of the companies listed above. He does, however, welcome your questions, comments, or kibitzing. Moody's is a Motley Fool Inside Value recommendation and a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.

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Stocks Mentioned

General Electric Company Stock Quote
General Electric Company
$78.90 (2.28%) $1.76
Citigroup Inc. Stock Quote
Citigroup Inc.
$54.00 (1.52%) $0.81
The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
$351.68 (1.08%) $3.77
Raytheon Technologies Corporation Stock Quote
Raytheon Technologies Corporation
$93.15 (-0.29%) $0.27
Moody's Corporation Stock Quote
Moody's Corporation
$317.60 (-1.53%) $-4.94
Siemens Aktiengesellschaft Stock Quote
Siemens Aktiengesellschaft
$56.53 (0.28%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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