General Electric shares bounce back after rating upgrade, IoT venture

General Electric (GE) has reached a pivotal point in its aggressive restructuring program, marked by the divestment of loss-making business units, amid mounting losses and operational lapses. After several months of volatility, there are indications that the company is on the revival path.

GE got a major boost from an unexpected rating upgrade by JPMorgan Thursday, coinciding with the management’s announcement about its ambitious move to spin off GE Digital into an independent Internet of Things (IoT) company. As part of the initiative, a majority stake in Service Max, the tech firm that joined the fold of GE Digital two years ago, will be sold to a private equity firm.

A majority stake in Service Max, the tech firm that joined the fold of GE Digital two years ago, will be sold to a private equity firm

After maintaining the underweight tag on GE for more than two years, JPMorgan raised its rating to neutral, citing a “more balanced risk reward,” but retained the $6 price target.

Meanwhile, GE’s stock surged more than 10% in early trading, marking the biggest intraday gain in nearly five years. The company’s market value had more than halved over the past twelve months. Currently, the stock is trading just above $7. At one point, the performance was so dismal that the stock was removed from the Dow Jones index.

The spin-off complements the industrial conglomerate’s efforts to realign its business and stay relevant by focusing more on the latest technology. The new entity is expected to generate $1.2 billion in annual revenue, combining GE Digital’s portfolio of industrial IoT technology and the software solutions business of GE Power.

It will engage with all the core businesses of GE and is expected to create significant value for shareholders. Being a late starter, however, the new business will have to fiercely compete with industry leaders like Microsoft (MSF) and Amazon (AMZN) to gain market share.

What to expect from General Electric going into 2019

While the GE management has taken several measures to tackle the ongoing financial crisis, the latest initiative could become a major driving force behind the company’s much-needed turnaround, in the long term. Since GE Digital’s head Bill Ruh has left the company, a new CEO will be leading the IoT brand, which will have an independent equity structure and board of directors.

 

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