With a transformational period behind it, it’s now all about execution at the wide-moat company.
By Barbara Noverini, CFA | 06-12-17 | 08:00 AM | Email Article

We’re maintaining our $32 fair value estimate and wide moat rating for  GE  following news that CEO Jeff Immelt will retire at the end of 2017. Immelt passes the reins to 30-year GE veteran John Flannery, CEO of GE Healthcare, who was recently tasked with turning around the segment’s performance amid years of stagnation. Flannery will assume leadership effective Aug. 1, 2017.

Barbara Noverini is a senior equity analyst for Morningstar.

In our view, the announcement marks the end of a tumultuous period for GE, during which the company evolved from a sprawling conglomerate toward today’s more streamlined industrial portfolio. While GE’s stock has been under pressure lately, we believe that history will ultimately look favorably on Immelt’s decisions to sell off GE Capital, acquire Alstom and Baker Hughes, and invest in industrial Internet applications; in our view, these bold moves support GE’s wide moat, and we still believe that longer-term investors will benefit from a stronger company moving forward.

That said, Immelt’s departure comes amid mounting investor impatience, particularly given the stock’s underperformance relative to peers, despite having completed what we see as one of the most transformational periods in the company’s history. Flannery will now face the pressure of operational execution as he leads the company toward meeting 2017 cash flow and cost-out goals, while simultaneously navigating it through the Alstom acquisition, the Leap engine and HA-Turbine manufacturing ramps, and the pending Baker Hughes deal. In our view, the balance of delivering near-term results while positioning the business for the long haul is a trade-off that Flannery knows well from his recent role in GE Healthcare. We expect to see additional focus on meeting near-term operational targets amid this leadership transition.

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Barbara Noverini, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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