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GE Intends to Lower Debt Burden, Boost Dividend Payments

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In a recent letter to shareholders, General Electric Company’s (GE - Free Report) CEO Larry Culp announced his intention to make the company’s more competent by improving its financial position through debt reduction and strengthening core businesses. Shares of the industrial conglomerate jumped 1.22% yesterday, ending the trading session at $10.79.

Of late, the company has been focusing on a disciplined financial strategy to reduce leverage at both its industrial businesses as well as GE Capital. It is worth noting here that the company substantially completed $20 billion of asset sales planned for GE Industrial in 2018.

Recently, General Electric also announced its decision to divest BioPharma business to Danaher Corporation (DHR - Free Report) and use the proceeds to pay its debts. Also, the company’s efforts are on track to reduce exposure to the GE Capital business. Asset disposition amounted to $15 billion in 2018, including $8 billion completed in the fourth quarter. Also, it reduced debt (external) by $21 billion in the year.

Further, Culp highlighted the company’s option to generate more cash and bring down its leverage by disposing of its remaining interest stake in Baker Hughes, a GE company . 

Moreover, in October 2018, the company slashed its dividend from 12 cents per share to a penny, which helped it to retain about $4 billion of cash in 2018. Going forward, it expects these initiatives will allow it to return cash to shareholders through dividends at an industry-competitive level.

In addition, General Electric intends to become more competent by focusing on core businesses. In this regard, the company intends to strengthen its Power business, which dented its performance over the past few quarters. It is looking to resolve the external and internal challenges through better inventory and material management, product development and delivery, as well as billings and collections.

Our Take

General Electric is poised to become more competent on the back of its portfolio-restructuring program. In June 2018, it announced its plan to become a high-tech industrial company, focused on Aviation, Power and Renewable Energy.

The company currently carries a Zacks Rank #3 (Hold).

This conglomerate’s share price has rallied 22.2% in the past month compared with 8.6% growth recorded by the industry.

Stock to Consider

A better-ranked stock from the same space is United Technologies Corporation (UTX - Free Report) , which carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

United Technologies delivered average earnings surprise of 14.87% in the trailing four quarters.

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