So, if GE is busted up, what is the valuation of its assets (real property, intellectual property, etc.). Can't think of the term: liquidation price?
How close is the current stock price to that range?
Book value of GE is around $9. In 2014 it was $14. GE basically sells for 2X book. Every asset they sell needs to sell for more than 2X book after tax in order to be favorable to shareholders. They have been unable to do so.
This is the problem with their strategy of a turnaround, with the money from asset sales they buy shares and pay dividends. The strategy is a liquidation strategy and has been so since 2011, they have spent about 35 billion buying shares back. GE also retired shares in exchange for purging themselves of Synchrony financial. This meant GE retired 670 million shares of stock in exchange for a division in 2015. Since then GE share price has fallen 33% while Synchrony has risen 50%. On the 18 Billion the stock was worth at the time GE has now lost 6 billion investing in themselves - without reporting a dime paid for stock while Synchrony increased by 9 Billion. And that money is gone for GE shareholders, they are now borrowing just to be able to have maintenance capital for remaining divisions. They also have lost an additional 12 Billion in enterprise value on share buybacks while the pension debt has soared by 32 billion.
This is not a CAT situation where CAT was in the midst of a downturn and had invested heavily in themselves and didn’t get the results expected. See the CAT thread from a couple years ago for a true Dogs of the Dow situation. This is the opposite, shrinking productive assets in hopes of clarity because apparently management doesn’t know how to manage current asset base…DUH!
They borrow for capital investment and pension expense which is becoming an albatross around their neck. You end up with a gradually smaller company with less revenues and more debt, hence less valuable and share price and enterprise value falling faster than share count— hence a destruction of value less the distribution of assets via dividend, the dividend the past few years and apparently going forward is a slow liquidation dividend. In the last 5 years you have about $5 in dividends, $11 in share price reduction and $5 in book value reduction. Going forward the path should be about $3 in dividends over the next 6 years and $6 in share price destruction along with another $2 in book value reduction yielding a stock around $12-13 and book value of $6-7. No thank you. Any five-seven year bond though should be perfectly safe as financing will continue to be able to make all the debt payments at the time.
Remember all those annoying commercials about GE being a software company and needing those new high tech grads? Was a big push for the modernization of GE… this is one of the main divisions being downsized because their software of the future division has been a disaster
Furthermore, this thread was started as if GE was a Dogs of the Dow candidate. It is not.. the dividend is just average now it’s dividend is about the same now as JNJ and almost certain to be cut again, unless corporate performance turns around rapidly. And when GE is pushed out of the Dow index in 2019 which I think is a near certainty with their continued shrinking focus as no longer a relevant company does that strategy still hold?