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GE Completes Last Major Sale of GE Capital Exit Plan

Zacks Equity Research

Industrial goods manufacturer, General Electric Company GE recently completed the last major asset sale transaction of GE Capital exit plan in order to retrace its engineering roots. The company sold GE Money Bank – its French consumer finance business – and its operations in the French Overseas Territories to an affiliate of Cerberus Capital Management L.P., for an undisclosed amount.

Since Apr 2015 to date, GE Capital has inked and closed sale agreements worth approximately $198 billion in ENI (ending net investment), including the current divesture ($4.4 billion ENI). The transactions are in conformity with the corporate strategy of building a manufacturing-based entity with emphasis on big-ticket items such as aviation engines, drilling machines, generators, medical equipment and scanners.

With these restructuring initiatives, General Electric expects operating earnings from the industrial business to comprise over 90% of its total operating earnings by 2018, up from 58% in 2014. Perhaps the high-growth potential of the Industrial sector and the credit risks associated with the financial businesses had been the most decisive factors behind the portfolio restructuring initiative.

However, in a major step toward re-conglomeration, General Electric inked a definitive agreement with Baker Hughes Incorporated BHI to merge its Oil & Gas business with the latter. The partnership aims to arrest the dwindling sales of GE Oil & Gas business by forming an industry leader with an unrivalled mix of service and equipment capabilities.

Investors have long been expecting such radical moves by this Zacks Rank #3 (Hold) company to pull up the sagging share prices. Over the last one-year period, General Electric performed miserably compared with the Zacks categorized Diversified Operations industry, with an average decline of 7.0% as against a gain of 2.5% for the latter.

Furthermore, General Electric’s current-quarter estimates have decreased significantly from 31 cents to 17 cents during the last three months while current-year estimates fell to $1.63 from $1.66 per share. To add to the woes, General Electric has a Value Growth Momentum Score (VGM Score) of ‘F’. Our research shows that stocks with a VGM Score of ‘A’ or ‘B’, when combined a Zacks Rank #1 (Strong Buy) or #2 (Buy), offer the best investment opportunities for investors. Consequently, General Electric appears to be a less attractive investment proposition at the moment compared to its peers.

A couple of better-ranked stocks in the industry include 3M Company MMM and Honeywell International Inc. HON, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

3M has a long-term earnings growth expectation of 9.7%. The company beat earnings estimates thrice in the trailing four quarters with an average surprise of 1.9%.

Honeywell has a long-term earnings growth expectation of 9.3%. The company surpassed earnings estimates thrice in the trailing four quarters with an average surprise of 1.9%.

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3M Company (MMM): Free Stock Analysis Report
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Baker Hughes Incorporated (BHI): Free Stock Analysis Report
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