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Why Is General Electric (GE) Stock Surging Today?

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Shares of General Electric (GE - Free Report) gained about 8% in early morning trading Tuesday after the struggling multinational conglomerate announced plans to spin off its health-care business and separate its stake in Baker Hughes (BHGE - Free Report) over the next few years.

The moves should help General Electric pare down its debt and sharpen its focus on core businesses like aviation, power, and renewable energy.

“We are confident that positioning GE Healthcare and BHGE outside of GE’s current structure is best not only for GE and its owners, but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future, while carrying the spirit of GE forward,” said CEO John Flannery in a statement.

General Electric also noted that it will maintain its current quarterly dividend until after the spinoff of its health-care business is complete. The company then plans to adjust the dividend “in line with industrial peers.”

GE’s new strategy aims to reduce the firm’s debt pile by about $25 billion by 2020 and generate at least $500 million in corporate cost savings through the end of that year.

The much-needed turnaround plan comes on the same day that GE is officially being replaced by Walgreens Boots Alliance (WBA - Free Report) on the Dow. GE was the last remaining original member of the index, but its recent struggles left many calling for more-accurate representation on the blue-chip gauge.

General Electric shares have lost more than 50% over the past year and now sit about 80% lower than their all-time highs seen during the early 2000s. The company has struggled to find value in its assets over the past decade as a shifting economy left many of its businesses in the dust.

Investors will hope that GE’s turnaround strategy can reinvigorate the stock, trim the company’s fat, and modernize its core businesses.

They will also hope that today’s plan inspires some positive analyst sentiment for GE, which has watched its current-year earnings outlook deteriorate in recent weeks. Downward earnings estimate revisions have dragged our consensus projection for GE’s 2018 earnings three cents lower over the past quarter, earning the stock a Zacks Rank #5 (Strong Sell).

General Electric is now expected to witness its annual earnings slump by about 9.5% year over year.

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