Will GE Stock be Affected by Potential Japanese Unit Sale?

NEW YORK (TheStreet) -- Shares of General Electric (GE) were gaining 0.1% to $27.06 Wednesday morning following a report that the conglomerate is looking to sell its Japanese commercial finance operation.

GE is looking to sell the Asian GE Capital unit as part of its efforts to make the company smaller, according to the Wall Street Journal. The sale of the unit is still in early stages, but comes after CEO Jeff Immelt announced plans to sell off spin off much of the $500 billion in assets owned by the GE Capital unit.

Potential bidders for the Japanese GE Capital unit are expected to include Mitsubishi UFJ Financial Group's (MTU) leasing unit and Sumitomo Mitsui Financial Group (SMFG), according to the Journal. The sale process will reportedly formally begin sometime in the next few months.

TheStreet Ratings team rates GENERAL ELECTRIC CO as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate GENERAL ELECTRIC CO (GE) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its expanding profit margins and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for GENERAL ELECTRIC CO is rather high; currently it is at 51.25%. It has increased from the same quarter the previous year.
  • Net operating cash flow has increased to $6,090.00 million or 22.75% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 8.12%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.7%. Since the same quarter one year prior, revenues slightly dropped by 2.7%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The debt-to-equity ratio is very high at 3.24 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Industrial Conglomerates industry and the overall market, GENERAL ELECTRIC CO's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: GE Ratings Report
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