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Why the continued angst over GE’s size? With more than $160 billion in sales last year and a market cap of $413 billion, it’s not small but it doesn’t exactly tower over the world’s largest companies, either. Wal-Mart, General Motors and a handful of energy companies draw more sales. What bothers investors is the memory of the $60 highs that GE stock hit during the dot-com glory days of Jack Welch’s final years. What if that was the anomaly, rather than what we’re seeing with the share performance now?
The New York Times is the latest publication to take on what has become a monthly debate: Is GE too big for its own good? I read the piece with interest because, as someone who covers GE, it’s a question that has filtered into my reporting as well. The issue isn’t really whether GE can continue to deliver strong growth in the immediate term because, frankly, it has. Earnings and revenue growth were both in the double-digits in the second quarter and the stock hit a five-year high last week as a result.
The bummer, as everyone likes to point out, is that it’s still only two-thirds what it was seven years ago. But think of the mindset that helped propel GE into the $60 range. Investors were euphoric about cutting-edge giants and Welch had basically cast GE as a digitally savvy player for the new millennium. Add to that the premium of being, well, Jack Welch. Dot-com madness meets management icon. The stock rocketed into the stratosphere,and then crashed back to earth (helped in no small part by the events of 9/11).
The problem for Jeff Immelt is that the comparison for GE is always against that elusive high. Yes, there are issues in finding consistent double-digit growth at such a size, regardless of how many nimble little fiefdoms and armies of entrepreneurs GE has. And investors, who are more inclined to caution than euphoria these days, have a hard time understanding exactly what they’re getting with GE. There always seems to be some moody child (NBCU/the now booted Plastics) to drag the rest of the family down. But the real issue may be the wistful fixation on a period in GE history that’s not about to be repeated.
Immelt knows that patience is wearing thin. He has known it for years. I wonder if investor paranoia about GE’s size may have played some role in nixing the company’s proposed $8 billion acquisition of Abbott Diagnostics. The only thing investors seem to want GE to buy these days is its own stock.
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