Shares of General Electric continued to decline on Thursday, a day after the company announced plans to sell its jet leasing business to compete with AerCap and place a substantially low-income GE Capital.
GE shares fell more than 8% on Thursday afternoon trading, after falling about 5% on Wednesday. Prior to the announcement, shares had rallied more than 120% in the past six months, reaching a new record of 52 weeks as recently as this week.
The Boston conglomerate on Wednesday announced an agreement to sell GE Capital Aviation Services, or Gecas, the largest remaining asset in GE Capital’s formerly colossal financial arm to AerCap. GE said it will take a 46% stake in the combined company, and the transaction will generate about $ 24 billion in cash. Once the transaction is completed in nine to 12 months, GE intends to transfer GE Capital’s remaining debts and assets to the company’s balance sheet.
Even as GE shares decline, AerCap investors seem to like the deal. Shares of the Irish-based company rose more than 6% in trading on Thursday.
In an interview with CNBC on Wednesday, GE CEO Larry Culp said the deal is a critical step in his company’s rotation plan as it seeks to simplify operations and pay off debts.
“GE shareholders should be delighted with this transaction,” Culp told CNBC’s David Faber. “With a $ 30 billion title, what we can do here is bring in cash … which will allow us to focus on further debt reduction.”
But not everyone sold. JPMorgan analyst Steve Tusa, who gained a strong foothold for his early warning signs of GE’s downfall under former CEO Jeff Immelt, warned investors Thursday morning about debt issues for GE. He said GE’s leverage will increase its assets about sevenfold after consolidating GE Capital’s remaining balance sheet debt.
He urged investors to focus less on the company’s improvements in free cash flow and instead focus on “changing net debt combined with EBITDA”.
The shares benefited from investors’ optimism about the pandemic and the possibility of a rapid economic recovery. But those gains are already listed on GE shares, he told investors.
The company said it will pay off debts of about $ 70 billion by the end of 2018, after concluding the transaction with AerCap. The company has “a high sustainable leverage … in addition to the fundamentals that we would characterize as being mixed with expectations of future revenues that remain too high,” he said.
Tusa reiterated the company’s $ 5 price target.
Asked on Thursday about the note of Tusa, member of the board of directors of GE, Ed Garden, stated that the industrial balance of GE not only obtains the remaining debt of GE Capital, but “we also receive assets of 21 billion dollars. It’s a proper book. “
“But most importantly, what we’ve done here is de-risk and de-leverage. It’s all part of our plan to make this a concentrated, simpler, purer, leveraged industrial company in line with its colleagues.” said Garden. on “Squawk on the Street”, adding that the goal is to reduce leverage by 2.5 times more than its assets.
Garden is the founder and investment director of Trian Partners, which initially took a $ 2.5 billion stake in GE in 2015. He told CNBC on Thursday that the hedge fund sold part of its stake in GE to to finance new positions in Comcast. He added that while GE “was not what we expected” when Trian invested, he is “very proud of where GE is going.”
Disclosure: Comcast is the owner of NBCUniversal, the parent company of CNBC.