Thursday , February 25 2021

of being the largest company in the world to fall 86%



A giant in trouble

Last June, General Electric left Dow Jones after more than 100 years as part of the American selective

Last June, General Electric left Dow Jones after more than 100 years as part of the US selective. At that time the titles of the electric moved in the area of ​​13 dollars and seemed that it was difficult to make things worse.

However, the market only took five months to prove that this hypothesis was incorrect. Since the start of the industrial index, the company added 34% and the last blow embedded in the company came from JP Morgan, which said that the shares still did not reflect the company's position despite falling by 74% since May 2016.

This was only the last blow to the company, which is quoted close to the minimum of 2009. At the beginning of the millennium, the company was the largest market value company in the world, limiting the $ 600 million capitalization. Now this figure has dropped below $ 75,000 million, compared to more than $ 300,000 million worth of just two and a half years ago. Thus, things, from the highest historical ones, the actions of the company fall 86%.

Jack Welch was the man who catapulted General Electric to the top. In its two decades as CEO of the company its value has increased from 13,000 million dollars to more than 400,000 million dollars. A path very different from that followed from the exit of the electric one.

According to the data of Bloomberg, who bought the stock from the company on September 7, 2001, The day he was replaced by Jeff Immelt as CEO and President, hThere were losses of 63% including dividends. This figure contrasts even more with the yield of the S & P 500 since then: it ascends 260% in the same period. After almost 16 years in command of the company, Jeff Immelt was replaced in August 2017 by John Flannery who has just been replaced by Lawrence Culp. But what are the problems facing the new CEO?

1.- The high indebtedness. According to FactSet data, the company accumulates a net debt of about 100,000 million dollars. The multinational has set itself the goal of reaching a debt / EBITDA ratio of 2.5 times by 2020. However, with the arrival of Lawrence Culp on October 1, this objective seems to be moving away. "Culp's financial priorities include a qualification of A: you currently have a A2 in Moody's, a BBB + in S & P and, at some point, reduce your debt / EBITDA ratio to less than 2.5 times. the administration does not expect to reach it by 2020. Thus, the deleveraging rate seems to slow down, "explained RBC Capital Markets.

2.- Cuts of dividends. One of the measures taken by the new CEO is to cut back, once again, the company's dividend. In particular, it will distribute 4 cents per share in 2019, compared to the current 48 cents. This represents an almost anecdotal profit of 0.5% and the experts think that it has not canceled the dividend completely to be able to be in the universe of those funds that can only acquire dividend dividend titles.

"This cut allows the company to protect itself from forced sales that would mean a suspension of the dividend, while allowing it to save about $ 3.9 billion per year," said RBC Capital Markets. Already in 2017 the company had reduced its dividend by half, but it seems that this movement was not enough.

3.- Investigation of the regulator. Of course, the company's problems not only reduced the high debt or cut the dividend to try to squeeze the same. General Electric warned in January that the US regulator (SEC) was studying the accounts of its energy division and an insurance portfolio that caused a cost of 6,200 million dollars. Now, the company acknowledged that the SEC expanded its investigation to an extraordinary $ 22 billion charge for its energy division.

4.- A weak business. In this way, the results of General Electric in the last quarter were much weaker than expected. Adjusted earnings per share stood at $ 0.14, 30% less than analysts' estimates, while billing fell by 4%. In addition, without adjusting the results, the company suffered losses of $ 2.63 per share.

According to analysts, the only company that is really able to maintain the company's results is aviation, while the energy, renewable and oil and gas units can not return to the track. "You can see the same dynamics that in the previous quarters, this includes the results in energy and renewable energies substantially below expectations and a good result of aviation." Without guidance, it is difficult to judge the sustainability of each division. It's not so close to being safe as bulls think and we do not believe that aviation can maintain this type of results, "they say in JP Morgan.

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