GE’s Revisionist History. Are We in the Midst of A Crack-up Boom?
It is great that investors are excited about GE’s three way split. CEO Larry Culp is viewed by many as a hero for helping to reduce GE’s $100 billion debt load and saving the company. The fact is that Larry did the only thing that Larry could do, which was to sell and spin assets to pare down GE’s debt load. Larry also restructured GE’s retirement plan to reduce future obligations. Larry and GE also benfited greatly from the Federal Government’s COVID response, both in terms of favorable fiscal and monetary policy.
This is what GE’s Total Revenue looks like if you do not back out the GE Healthcare business that was sold during the first quarter of 2023 from prior year results and if you do not back out discontinued businesses. Does not look so hot, does it?
GE’s aerospace business will retain its name and the GE ticker with Larry Culp as CEO. Let’s look at GE Aerospace’s financials:
The street says that GE Aerospace should carry an equity valuation of around $100 billion. That would imply a 3x Revenue and 14x Operating Profit multiple on 2024 estimates. Sounds quite rich. GE Aerospace is not a Software company. 1x Revenue sounds far more reasonable.
The equity market and its rich valuations suggest we are in the midst of a crack-up boom as market valuations do not reflect economic reality.
