The sector did not take the latest investment-view presentation from General Electric (NYSE:GE) very well and sold the shares in the following days by a double-digit percentage. Although the explanation for this is difficult to know, the outlook for the reported industrial debt of the company probably deteriorated a significant proportion.
The devil is in the details, but GE stock is still fantastic for reducing its debt and becoming a good value stock after closer inspection.
Encouragement from General Electric
On the shareholder’s day of March 10, having outlined GE’s debt plans, GE’s CFO Carolina Dybeck Happe outlined these at the Bank of America Global Industrials Conference on March 17, another week later. Clearly, GE needed to get the idea out again, because the lectures may have contributed to misunderstanding. Let me do it for you and dismantle it.
The corporate debt advice of GE stock was awful on a multimedia basis. Industrial debt, as can be said, is projected to increase by 21 billion dollars and net debt by 19 billion dollars from 2020 to 2021. All of which is projected to give rise to the 6-fold net debt ratio of earnings before interest, taxes, depletion and depreciation (EBITDA). As the level of investment debt is normally 2.5 times or less (seen as low default risk), these figures seem very unfortunate.
The deficit reduction programme
Firstly, the explanation for the balloning of industrial debt is that GE stock Capital’s remaining companies are now moving GE Industrial to AerCap after the agreement to sell their GECAS aircraft lease company. As such, GE is reporting now as a regular manufacturing enterprise. In reality, management has praised simplicity in the presentation of one reporting line (GE) rather than three lines (GE Industrial, GE Capital, and Consolidated).
Shareholders need not be panicked over accounting reform. Rather, GE’s debt reduction strategy for 2023 is the only issue they should concentrate on here. It’s here, therefore.The main figure is the deficit reduction of 25 billion dollars to 45 billion dollars. The total income ratio is just as significant. This number should be 2.5 times less than the main in 2023.For a business that some investors thought could go bankrupt a few years back, that would be a stunning turnaround.
Support is outstanding
Last, observers may have remembered that the management of GE provided the net debt projections in 2021 and 2023 for the same duration with net debt to EBITDA targets. From this it’s a matter to mathematics to say that the implicit GE EBITDA target is 8.5 billion dollars in 2021 and the implicit 2023 target is 13.2 billion dollars to 14.8 billion dollars. There are also many other stocks like AMZN stock which can be invested.