General Electric Company (NYSE: GE) has taken quite the tumble under current CEO Jeffrey Immelt -- down 74% from the $41 it traded at when he took over in September 2001.
But if you had backed up the truck and bought the shares at its 52-week low of $6.66 on March 4, you would be sitting on a 61% gain. And that hypothetical gain is improving -- GE stock is up 5.9% this morning -- thanks to an investor conference underway now (which I discussed last night on Marketplace) to disclose details of GE Capital (GECC) -- its finance unit.
GECC -- which makes loans for goods ranging from commercial real estate to heavy equipment purchases -- accounted for 33% of GE's operating profit -- or $8.6 billion in 2008. Now GE's CFO, Keith Sherin, thinks it will make money in 2009 as well. "We expected GE Capital to be profitable in the first quarter and we expect GE Capital to be profitable in 2009," according to Thomson Reuters. Specifically, Sherin thinks GECC will earn $5 billion -- down 42% from 2008.
But that's better than what Standard & Poor's expects. S&P lowered GE and GE Capital's AAA credit rating one level to AA+ last week with a "stable" outlook. S&P thought that GE Capital would post "little or no profit or possibly a 'modest net loss' this year and next."
So who's right -- S&P or GE? The answer depends on many factors -- not the least of which is GE's exposure to commercial mortgage-backed securities (CMBS).
Sherin claims that GECC has
This afternoon when GE's presentation ends, I hope that investors agree with Sherin that GECC will do far better than S&P expects. If so, GE stock may have further to rise. But if GECC offers unpleasant surprises later this year after a $5 billion profit forecast, the credibility of management could be shot.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He owns GE shares.
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