What's going on?
You spend ages waiting for a bus – and then two come along at once. Industrial powerhouse General Electric’s stock just got a couple of pick-me-ups – lifting it 8% on Thursday.
What does this mean?
First, General Electric announced that it’d “spin off” GE Digital, its software-focused subsidiary, into an independent company. GE Digital will focus on developing “internet of things” tech for industrial firms, a market which could be worth over $176 billion globally by 2022. GE also agreed to sell ServiceMax – a cloud computing arm of GE Digital – to private equity investors, having only bought it in 2016.
Then, an analyst from investment bank JPMorgan who’s been a longstanding thorn in the General’s side appeared to offer an olive branch. In a Thursday report, he said it was now feasible that GE could turn its embattled business around. For two years, he’d (rightly, in hindsight) been advising investors to “sell” GE’s shares – but the new “neutral” rating reflects a more balanced stance.
Why should I care?
For markets: Progress without panic.
Back in November, GE’s CEO seemed to spook shareholders when he reminded them of the company’s “urgent” need to reduce its debt by selling assets. That suggested the company was in direr financial straits than investors had thought, and might therefore flog things on the cheap. Thursday’s announcement may now reassure investors that GE can slim down its byzantine structure without resorting to a fire sale.
For you personally: Not all investors should listen to analysts.
Analysts with a reputation for being right exert a powerful fascination over some investors, who slavishly follow their recommendations. Today’s change in rating could therefore encourage a number of investors who previously sold to return to GE’s stock party. But those fond of dividends will be in no rush to re-don their dancing shoes: they took their seats in October when GE cut its profit payout to a single penny per share.