|Bid||6.64 x 21500|
|Ask||6.65 x 41800|
|Day's range||6.38 - 6.70|
|52-week range||5.48 - 13.26|
|Beta (5Y monthly)||0.90|
|PE ratio (TTM)||N/A|
|Earnings date||28 Oct 2020|
|Forward dividend & yield||0.04 (0.63%)|
|Ex-dividend date||26 Jun 2020|
|1y target est||7.70|
(Bloomberg Opinion) -- The aerospace sector is headed for “a slow, multi-year recovery,” General Electric Co. Chief Executive Officer Larry Culp warned on last month’s second-quarter earnings call. There’s nothing unique about that view: Boeing Co. has said it will take about three years for air-travel demand to recover to 2019 levels; Raytheon Technologies Corp. is targeting 2023; and the International Air Transport Association recently pushed back its timeline for a recovery to 2024.The slump is particularly painful for GE, though. Unlike many of its rivals in the market for airplane production, it was already in the middle of a multi-year turnaround before the pandemic hit. The news that influential shareholder Trian Fund Management — led by Nelson Peltz — is trimming its position in the industrial giant should be viewed in that context.Trian cut its stake in GE by 46% during the last week to just over 32 million shares, according to regulatory filings. The sale was for “portfolio management purposes, including to provide for new positions,” Trian said in an emailed statement. Even with the divestiture, the fund remains relatively high up on GE’s shareholder register and chief investment officer Ed Garden will continue to serve on GE’s board. So Trian is hardly abandoning the investment, nor has it given up hope of a recovery. “Trian is highly supportive of GE CEO Larry Culp and his team’s restructuring efforts and focus on creating long term value,” the fund said. Still, it’s a tough time to be selling.GE shares are down more than 40% this year, compared with a nearly 4% gain for the S&P 500 Index. Trian’s average price for the sales was just over $6, a nearly 75% discount to the mid-$20 range where GE was trading during the month leading up to the fund’s October 2015 announcement of its investment.Back then, Trian argued the market wasn’t appreciating the “bold steps” that former CEO Jeff Immelt had taken to reshape the company and touted the “defensive growth” profile. By improving operating margins and adding $20 billion of debt to help fund share buybacks, the stock could trade for $40 to $45, Trian argued. It never came close.GE has since been bogged down by tens of billions in writedowns, with the brunt tied to a steep funding shortfall in its long-term care insurance business and an ill-timed acquisition of Alstom SA’s power business that increased the company’s position in the gas turbine market just as demand began to rapidly deteriorate. Immelt’s replacement, John Flannery, was pushed out and Culp took his place in late 2018. Buybacks are out of the question, with the company having instead spent the past few years doing everything it can to reduce a debt load that became untenable as the power business burned through cash.Culp was just starting to show progress on a turnaround of the embattled power unit when the pandemic arrived, with the high-margin and cash-flow generating pharmaceutical diagnostics and aviation units getting crushed the hardest. The company has recorded a cash outflow of more than $4 billion so far in 2020 and Culp was hesitant to give a firm commitment to a positive number for the second half of the year, which is typically when GE makes most of its money. Will GE survive the crisis? Yes, and it’s to Culp’s credit that’s the case. He has aggressively cut costs, accelerated asset sales and generally done a much better job fixing this massive enterprise than critics like myself thought was possible when he started. But what will the company look like on the other side of this?Siemens Healthineers AG’s announcement of a $16 billion purchase of cancer radiotherapy company Varian Medical Systems Inc. earlier this week speaks to the risk of missed opportunities. The Varian deal is pricey and risky with hospitals cutting their budgets to adapt to the pandemic. But the combination of Siemens Healthineers’ diagnostics expertise and Varian's treatment technology is strategically intriguing over the long haul and the takeover could end up being opportunistic. In a different world, this deal might have been GE’s to lose. After all, the CEO of Varian is a former GE Healthcare executive. As it is, the company is effectively side-lined from any kind of major M&A for the foreseeable future.Culp likes to talk about getting GE to a place where it can “play offense.” But the timeline for doing that has been pushed out indeterminately by the pandemic. In the meantime, there are more attractive places that both Trian and other investors can put their money. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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(Bloomberg Opinion) -- Monopoly power is a good gig if you can get it. The trouble is keeping lawmakers from knocking on your door. Tech titans Apple Inc., Amazon.com Inc., Facebook Inc. and Google parent Alphabet Inc. managed to do just that until last week, when a House subcommittee summoned the chief executive officers of the four companies. Lawmakers took a dim view of the tech giants’ grip on their respective industries. “These companies as they exist today have monopoly power,” said Representative David Cicilline of Rhode Island, who leads the House investigation into the companies. His prescription: “Some need to be broken up, all need to be heavily regulated.” The sentiment appeared to be shared widely.As a matter of public policy, the issue is relatively straightforward. Monopolies are trouble, which is why antitrust laws are designed to stop them. They have the power to raise prices and thereby stifle demand. They often turn into big, lazy, unwieldy bureaucracies that have little incentive to innovate or look after customers, workers and suppliers. And perhaps most problematic, they can use their money and influence to seize political power, making it more difficult to dislodge them. There’s little disagreement that Apple, Amazon, Facebook and Google pose such a threat. Apple controls nearly half the U.S. smartphone market and dominates the distribution of apps; Amazon all but controls e-commerce; Facebook rules social media; and Google has a firm grip on internet search and online advertising. It’s difficult to overstate their power. The four companies make up just 0.8% of the S&P 500 Index by number, and yet they account for 6.1% of its total revenue, 8.9% of its earnings and 16.8% of its market value. For investors, the issue is a bit more complicated. Monopolies are impregnable money-minting machines, so everyone wants a piece of them. It’s no accident that Apple, Amazon, Alphabet and Facebook are four of the seven biggest companies in the world by market value. Nor is it surprising that their profits have trickled down to shareholders. An equal investment in the four tech giants since Facebook — the youngest of the bunch — went public in 2012 has produced a return of 31% a year, including dividends, more than double the return from the S&P 500 over the same period. It turns out they’re not alone. Stocks of highly profitable companies tend to beat the market. Shares of the most profitable 30% of U.S. companies, sorted on return on equity and weighted by market value, outpaced the S&P 500 by 1.6 percentage points a year from July 1963 through June, according to the longest data series compiled by Dartmouth professor Ken French. And they did so with roughly the same amount of volatility as the broad market, as measured by standard deviation, a common proxy for risk.Astonishingly, the odds of capturing this profitability premium favored investors regardless of the holding period. Shares of the most profitable companies outpaced the market 65% of the time over rolling one-year periods, 76% of the time over three years, 83% over five years and a whopping 93% over 10 years, counted monthly.But markets aren’t supposed to work this way. You shouldn’t be able to reliably beat the market using widely available information without taking more risk. One explanation for the profitability premium is that investors are rubes: They don’t pay attention to profitability when picking stocks, or worse, they errantly favor less-profitable companies, allowing more cunning investors to exploit their mistakes. That seems unlikely. Profitability has long been a key feature of security analysis. More recently, there has been a proliferation of indexes, and funds tracking them, that pick or weight stocks based in part on profitability. And as the market value of Apple, Amazon, Alphabet and Facebook show, their shares are hugely popular. A more plausible explanation is that the profitability premium is compensation for the risk that today’s profits will evaporate tomorrow. Highly profitable companies rarely maintain the same level of profitability. More often, competition squeezes it away or, as in the case of Apple and its cohorts, the competition is crushed or acquired, resulting in greater market share and profitability but also inviting lawmakers and regulators to step in.Microsoft Inc.’s antitrust entanglement with the government in the late 1990s is instructive. Bill Gates and Paul Allen founded the company in 1975, and by the early 1990s, most personal computers ran Microsoft’s operating system, first MS-DOS and then Microsoft Windows. In August 1997, the company became the second largest in the U.S. by market value, behind only General Electric. A year later, in May 1998, the U.S. Department of Justice and 20 U.S. states sued Microsoft, accusing it of attempting to illegally protect and extend its monopoly by undermining competitors. By the time the case was argued in early 2001, much of the evidence against Microsoft had spilled into public view. Although profits continued to grow, the legal and regulatory scrutiny around the company clouded its future, and shareholders paid the price. The stock returned a negative 4% from May 1998 to December 2000, even as the Nasdaq Composite Index and the S&P 500 returned 33% and 23%, respectively, over the same time. Several months later, a federal court found that Microsoft had violated federal antitrust laws. As it turned out, of course, Microsoft has maintained its status as a tech powerhouse. Today, its market value is second only to Apple among U.S. stocks, and shareholders who stuck with the company through its antitrust battles have been richly rewarded. Microsoft has returned 27% a year since it went public in 1986, compared with 11% and 10% a year for the Nasdaq and S&P 500, respectively. But that was far from a foregone conclusion when Microsoft was in the government’s crosshairs. And if lawmakers, regulators or prosecutors muster the will to go after Apple, Amazon, Facebook or Alphabet, their shareholders should prepare for more paltry returns and perhaps worse. For now, investors don’t seem worried that the tech titans are in danger. All four of their stocks were higher after the hearing than before. And all four companies reported financial results that beat analysts’ expectations a day after the hearing, no doubt emboldening their shareholders. Still, Big Tech’s faithful should bear in mind that monopolies are only as durable as a government that tolerates them. The profitability they enjoy, and the skyrocketing stock prices that accompany it, are no free lunch. They’re payment for the risk that lawmakers are more serious about breaking up or regulating the tech titans than investors seem to believe.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.