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GE Shuffles the Deck


Multinational unveils reorganization plan, but healthy bottom line still most important yard stick.


On Friday Connecticut-based General Electric (GE) announced plans to simplify its structure and winnow the number of business segments it operates from 6 to 4. According to the company's press release, those segments will be as follows:

  • GE Capital, its financial business, comprising "Commercial Finance, GE Money, industry verticals (GECAS, Energy Financial Services) and Corporate Treasury."
  • GE Energy Infrastructure, its energy assets.
  • GE Technology Infrastructure, its aviation, transportation and healthcare businesses.
  • NBC Universal, which speaks for itself.

To some, this reorganization may seem like a non-event, but I think it's noteworthy. Here's why:

First, it'll make the massive company easier to understand. The Street has long held that GE simplifying its financial businesses would make particular sense, because determining exactly where money was coming from each quarter was challenging. An increased understanding of the company's corporate structure could boost demand for the languishing shares among retail and institutional investors.

Second, it's nice to see CEO Jeffrey Immelt making waves. It's not as if he's been sitting around twiddling his thumbs (this restructuring does come on the heels of news the company's considering jettisoning its appliance business), but it's an important step that allows Immelt and crew to rack up credibility with the investment community. Especially with lackluster earnings and the stock near its 52-week low.

Third, there's a chance we could see divestitures in the near term, which could raise precious capital in addition to making understanding the giant conglomerate easier. Further announcements on that front could, I believe, also spur the stock.

Of course, none of this will amount to a hill of beans unless the company can deliver on earnings.

Speaking of which, the next test for Immelt will come when the company releases its third-quarter results. Currently, analysts are expecting GE to earn $0.53 per share, down about a penny from 30 days ago. If it hits that number and paints a decent forward-looking picture, shares could have some upside. Conversely, If the company assumes a more cautionary stance and doesn't give the impression the refresh will continue in some shape or form, it will probably continue to languish.

GE closed at $28.71, flat on the day.

No positions in stocks mentioned.

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