NEW YORK (TheStreet) – General Electric's (GE) CEO Jeff Immelt has promised to get the company back to its industrial roots. So it comes as no shock that company announced plans to sell its GE Appliance unit, one of its poorest-performing segments.
Shares of GE were trading at around $26, dow 7.6% on the year to date, trailing the 0.47% gain posted by the Dow Jones Industrial Average.
GE's appliance unit has a suitor, drawing interest from Quirky Inc. and Sweden-based Electrolux AB (ELUXY). The questions is how much GE can fetch for its century-old businessh.
Calls and emails to GE representatives were not immediately returned.
The appliance unit wasn't picking up its weight. Revenue continues stagnate. This business accounts for almost 6% of the company's total revenue, but generates roughly 1.6% of total profit. Not to mention, with less than 4% in operating margin, GE was wasting money just by "keeping the lights on." Cutting its losses seems like a logical move.
Nonetheless, it is estimated that GE could generate in the area of $2 billion. It's not game-changing deal for GE, which is generating almost $30 billion in operating cash flow. Still, that's pretty good coin for a business that's producing no growth while delivering poor margins.
The way I see it, GE is positioning itself for the next 10 years of growth. So at around $25 per share, the stock is a sure bet to reach $35 in the next 12 to 18 months. Note, GE would only need to grow its revenue at a long-term rate of 4% to 5%.
What's more, with Alstom now firmly in hand, selling the appliance unit will help GE regain the focus it needs to grow its international presence against German rival Siemens AG (SI). This is because GE now owns all of Alstom’s global gas and steam turbine equipment and services business.