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General Electric Company (GE)
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Here is a totally baffling mystery at General Electric.
As a sleuth - you tell me what you think is happening....
A deeper look into the General Electric Q1 numbers shows:
The total debt long term was $146 billion.
Offsetting that is $32 billion in cash equivalents.
The biopharma cash will reduce the debt by $21 billion.
The GECAS sale will give GE another $21 billion making the outstanding debt around $73 billion remaining.
So I just saw something unusual that raises eyebrows:
General Electric dipped into their $33 billion cash equivalents using $8.8 billion to pay off some of their bonds.
The remaining bonds appears to be two classes -
$3.2 billion in 6-10 year bonds and $20.8 billion in over ten year bonds.
The question is: why did GE do that now with so little cash to spare?
In Q2 they have said in their 10K SEC filings they will discontinue factoring.
They will take a direct dollar for dollar write off all in Q2 of between $3.5 and $4 billion.
That is a very aggressive movement.
Writing all these bonds and factor reductions in such a short time sets in motion questions.
The $8.8 payment for bond redemption and the $4 billion in Q2 to pay off factoring amounts to a debt reduction of $12.8 billion.
That is a very aggressive write off in a very short 60 day period.
So the question is WHY SO FAST?
The normal thing would be to wait until Q3 and use some of their likely Free Cash Flow profit to pay off debt at that time.
Added to the above is a statement made by comptroller Carolyn Dybeck Happy.
On May 10th she told us GE plans to supplement Q2 cash flow by dipping into some place and get $800 million for Q2 to cover costs.
Why pay off on one side of the ledger and use a cash borrowing on the other side.
There are ways they could have avoided the $800 billion borrowing.
They could have sold some more Baker Hughes stock.
Another way is they could have booked a few more sales. Another way is to float more derivatives against the incredibly complex foreign exchange they use liberally to offset all the foreign incoming currency.
The simple question unanswered is.
What is actually going on behind the scenes to pay off that so fast?
Now don't get me wrong.
This is very aggressive and any investor loves seeing all that debt disappear....
Steven - thank you for the positive reply to my jj email
You indicated the reverse split is to try to get General Electric to be similarly in price and other critical numbers reporting - so they can be favorably compared.
When I saw the reverse split announced in the spring , I did a Q1 comparing Raytheon and a Q1 compared to Honeywell. M results were quite stark and revealing.....
If General Electric does even a part of what I think they are indicating they plan to do by the end of Q4 2021 - they will come out looking very strong compared to their peers.
This stock price in the aviation and military fields is very, very important for institutional investors.
It is GE's core business which I think is rapidly returning to normalcy.
Definitely the domestic volume is returning.
Maybe a bit slower for the international travel industry.
The military should be fine.
It think they once again will be a standout against other engine manufacturers.
Rolls Royce and once again Raytheon will not look as strong as GE at comparative year end reporting.
Bth engine makers are slipping in market share and Rlls Royce is deeply in debt. Raytheon's Pratt Whitney engines are not reliable and losing market shaer in the Airbus and Boeing new planes to GE.
I also have done the comparisons for Vestas and Siemens in the Wind Turbine Industry.
Once again General Electric should be head over heels above both in
margins, volume, customers, extended contract by the end of the year.
Added to that, both Siemens and Vestas are in management shakeups because of their poor marketing last year. So this is a real opportunity for GE to break out.
Power and Medical are less clear. Medical is predictable and profitable. Power is not predictable and somewhat profitable. Neither has an easy comparison to make for the resuts - but all the firms competing with GE will be much easier to compare next year.
Am sitting on 2,004 shares at a cost average of $14.74. So, yeah, I am upside down on GE. Haven't really been that worried about it since I am a long term investor and figured GE would recover, at least enough for me to eventually cash out in the green. Probably will still get that chance since I am close. But, more than that, I was hoping to see GE return to being a "blue blood" a good dividend payer I could keep with my other blue chip divies.
Definitely having my doubts...
$18 later this year…
$24 next year…
$30~$60 in the next five years
jj You say you want to be my friend in your recent today post.
A friend listens and respects another person.
A friend does not put a person down or belittle them.
All my posts are carefully researched to find the truth. They are never to cheer or champion General Electric. In fact, some upcoming posts ask questions that are baffling to me and shoudl also baffle you.
Wha I object to is the 10 posts per hour, the ridicule, the belief that your thoughts are betterthan my thoughts. If that continues, why not just mute me so you can avoid the irritation.
I cannot think of one legitimate reason any person on this board would think they will influence anyone else buying that day stock.
When 50 million shares trade a day - that is over $$600 million dollars.
Nobody here is doing anything remotely approaching that daily buy or sell activity.
As for shorting - each to his own.
I have done my share - but at this point I am long and will be long for the next 4 months until October and proibabaly until Q4 2021 results cme in.
"The reverse stock split will better align GE's number of shares outstanding with companies of our size and scope. It also marks another step in GE's transformation to be a more focused, simpler, stronger high-tech industrial company." The exact wording from GE. Now people think. At a higher price, it is too tough to short GE stock. That will throw away people who will short GE (Short seller)that will also throw away small retail investor with weak hands. This is good for the company. Wait and see.
Alternative scenario: the upside breakout of 13.7 would call for 14.4 and 14.8.
RS on the way down is a sign of weakness but RS on the way up are sign of strength. you should know the company before investing.
Any reason to believe that GE will not be another Citi stock after the reverse split?
Soon there will be very few shares available to trade compared to today.
So instead of the stock price being $13 it will be roughly $104?! That's a 1,649% increase. Maybe I can retire early!!!!!!
D+ is over D- and adx reads 30. Nothing but green today 😎
$15 by August ...
"GE's plan is to make the reverse stock split effective after trading ends on Friday, July 30. Investors will get their first chance to trade the split-adjusted shares the following Monday, August 2."
Good luck. I will buy after august 1st week.
This is the third time I have sent you a reply.
Nothing hasgone through....
Culp gets ZERO DOLLARS until August 2024
He is paid in stock only if he completes his contract and stays for the next 36 months.
He is paid instock - not money.
So he isincentivized to get the stock price up as far as possible.
I can click and be out of GE any minute I want and I can do it one day before Culp gets paid.
So what he makes has nothing to me. I may not even be there in 3 years.
as for the dividend everyone is crowing about.
Culp says no divident increase. I say that is wonderful.
I am looking for a higher stock price and as an investor I am ONLY interested in the best stock price.
Giving away dividends is no different than giving to a homeless person on the street.
I get very little back for a lot of spending.
Better to pay off debt.
I'll try stock gains for 10k Alex......What former Danaher CEO took the stock price from $10 to $60 during his tenure.....Dan.....who is Larry Culp.....correct....Dan has won the game!!!
The Very Boring Figures on How GE Paid Down Bonds
Ten days ago GE asked holder of debt/bonds to cash them in at a stated price.
The headline news is: GE will buy back $7.1 billion of outstanding bonds. They will also pay the bearers early interest of $1.71 billion.
The two costs will add up to $8.8 billion dollars in cash.
Most of you will be bored with the details below – so I only include them for people educated beyond the second grade.
For the others that are having fun in their playpens in the play rooms, no need to venture into the world of thinking.
What camp are you in? “Investor” of “trader”. “Serious” or “heckler”?
It may not be reasonable to think there will be many that read further – but if you are interested, this is the table of payments.
ALSO, GE can choose if they want to go ahead and accept the tendering of outstanding bonds. It is a optional offer, governed by GE.
I cannot see why it will not be oversubscribed. The offer asks the holders of the bonds to exchange the bonds for full early payout.
+ + +
Here are the details on the three bond TENDERS:
TENDER 1 - $2,865,000,000 bonds which GE will buy back $352.13 million.
GE will pay the bearers $363.76 million which is $11.63 million of interest paid now. These bonds interest rate is 4%. They mature in 13 months in 2022. If GE waited 13 months for bonds to mature, they would pay about $10.49 million of interest.
TENDER 2 - $5,839 billion of 2027 maturity date bonds . GE is only willing to tender a buy back of $2,725 billion. They are offering to pay $3,780,billion to redeem now - or an extra $1,060,000,000 of interest prepaid to redeem. These bonds interest rate is around 4%. These bonds mature in 2027. Payment now cuts short 6.2 years of interest that would have to be paid. The savings per year of interest is $169,720,000.
TENDER 3 - $7,106 million bonds. They are at 4% interest. They mature in 2025. GE is only wanting to buy back $3,913 million. Some of these bonds will still exist out there. Perhaps this is their next buyback in a few months.... Buying back Tender 2 would cut 3.8 years of interest payments. That would be $169 million per year or $639.5 million total.
SUMMARY OF MONEY: The three payments would be $363.13 million + $2,725 billion + $3,910 million = $7.1 billion dollars being redeemed of outstanding bonds. To do this General Electric is offering to pay early interest of $11.6million + $1,710 billion + $639 million = $1.710 billion of early interest payments.
The total cash will cost General Electric $8.8 billion now.
I will be using the above figures to pose a much more interesting question in a future post.
So this is my first sonnet to keep “farmer” happy. He wants my posts to have less length.
This post is only intended for serious investors – not the heckler crowd that thinks paying $8.8 billion in a week or two against outstanding debt proves General Electric is a doomed company.
If I pay off my credit cards – the credit bureau raises my score.
If GE pays off $8.8 billion of debt, the heckers on this board ignore it and still claim "chicken little - the sky is falling in".
I know I couldn’t pay $8.8 billion dollars to anyone – much less holders of GE debt.
All that GE stockholders are waiting for is Q2, Q3, and Q4 earnings.
Look at past 2019 free cash flow earning and clearly see the possibility coming up.
AVIATION 2019 FCF $6.82 billion
MEDICAL 2019 FCF $3.9,
POWER 2019 FCF $0.4
TOTAL 2019 Free Cash Flow was $10.1 billion.
All that profit was lost in the GE Capital writedown and other 2019 problem offsets.
UPCOMING 24 MONTHS.
We are entering the best comparison quarters in GE history.
If we compare the 2020 to 2021 upcoming quarters - Q2, Q3, and Q4 - they should be blowout results.
All of 2020 was impacted by the pandemic and the world shutdown.
2021 SHOULD BE BETTER THAN 2020. 2022 should be even better. I can't even imagine how 2023 Will look....
We know that Dybeck Happy has said Q2 will be using 800k of more cash. I plan to comment on that in the near future. That announcement was intentional to tap down expectations. It means there is something happening out of our sight....
But 2021 and 2022 have to be a blowout earnings quarters coming unless Culp decides to further hold back. Perhaps his game plan is to make 2023 even more impressive.
Time will tell.
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'This is it guys, the biggest US fantasy trip of all time,' famed investor Jeremy Grantham told Bloomberg.
'This is it guys, the biggest US fantasy trip of all time,' famed investor Jeremy Grantham told Bloomberg.
Tusa still maintaining a $5.00 price on GE. I wonder he will change it to $40.00 post split?
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