GENERAL ELECTRIC CO. $14(New York symbol GE; Manufacturing & Industry sector; Shares outstanding: 8.7 billion; Market cap: $121.8 billion; Dividend yield: 3.4%; Takeover Target Rating: Lowest; www.ge.com) is a leading maker of industrial machinery, including jet engines; power plant equipment; and locomotives. It also makes medical gear and lighting products.
Under a new long-term strategy, GE plans to narrow its focus to three main businesses: electrical power equipment, aviation, and healthcare. In addition, the company plans to sell most of its remaining operations. It expects those sales to generate total proceeds of $20 billion over the next two years.
As part of that plan, the company recently agreed to merge its locomotive business with Wabtec Corporation (New York symbol WAB).
First, GE will spin off that business and hand its investors shares in the new company. As an independent firm, the locomotive business will then merge with Wabtec. After the deal closes, GE will own 9.9% of the combined firm, while Wabtec will hold 49.9%. GE investors will own the remaining 40.2%. Wabtec will also pay GE $2.9 billion. The two companies expect to complete the transaction in early 2019.
Meantime, GE’s earnings in the first quarter of 2018 rose 15.8%, to $1.42 billion from $1.22 billion a year earlier. Per-share earnings increased 14.3%, to $0.16 from $0.14, on more shares outstanding.
Those gains are mostly due to savings from cutting jobs and closing some facilities. In the latest quarter, restructuring lowered GE’s costs by $805 million. The company expects savings to reach $2 billion by the end of 2018.
Revenue rose 6.6%, to $28.7 billion from $26.9 billion a year earlier. Excluding acquisitions and exchange rates, revenue fell 3.7%. Declines for the company’s power equipment and transportation operations offset gains for its oil and gas, aviation and health-care businesses.
GE may consider spinning off more of its operations, including its 62.5%-owned subsidiary Baker Hughes, a GE Co. (New York symbol BHGE). That business sells a variety of services and products to help exploration companies extract more oil and gas from their wells.
GE is still a buy.
NEWELL BRANDS INC. $26(New York symbol NWL; Consumer sector; Shares outstanding: 485.2 million; Market cap: $12.6 billion; Divd. yield: 3.5%; Takeover Target Rating: Medium; www.newellbrands.com) makes a variety of household goods such as pens, coffee makers and baby strollers. On April 15, 2016, the company took its current form through the merger of Newell Rubbermaid and Jarden Corp. Newell shareholders now own 55% of the combined firm.
Billionaire activist investor Carl Icahn owns 7% of Newell and New York-based Starboard Value holds another 4%. Both support the company’s plan to focus on nine key product lines: writing; baby; home fragrance; food; fishing; Jostens (jewellery); appliances and cookware; outdoor and recreation; and safety and security.
As part of its strategy, Newell will sell its Rawlings Sporting Goods business for $340 million (after taxes).
In all, the company aims to raise as much as $10 billion. Newell is also reducing the number of its factory and warehouse locations by 50%. It expects to complete the process by the end of 2019.
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