General Electric Company (NYSE:GE) is fast becoming an irrelevant company for many investors in U.S. industrial companies, according to a research note penned by Barclays PLC (LON:BARC) on Wednesday.
The industrial conglomerate’s image as a staid and safe company conflicts with a popular perception that it is a “battleground” stock, a company people either love or hate for its business strategy and fundamentals.
“The opposite of love is sometimes hate, but more often it’s irrelevance, and the vast majority of our conversations has been with investors who have long given up on the name,” wrote Barclays industrial analysts, of General Electric.
Even though the company’s stock will do well in unpredictable industrial and equity markets, investors may find GE’s size and lack of initiative unappealing relative to competitors.
“The bigger-picture debate at present is whether GE, even at its best, can compete as a stock with more nimble and smaller players … or whether it has the sense of urgency … or has the cultural momentum of a Honeywell International Inc. (NYSE:HON) or Danaher Corporation (NYSE:DHR),” read the note.
In the past few years, the company has promised to reduce its reliance on its financial arm, GE Capital, and has refocused on its industrial operations, including an expansion of its renewable energy business. The diversified GE operates financial, real estate, health care, energy and manufacturing arms.
GE’s appeal to shareholders may be based on its size, which theoretically underpins stable earnings, easy acquisitions and higher profit margins. But shareholders haven’t seen much of those benefits recently, wrote the analysts.
The diversified conglomerate had a mediocre showing in its most recent earnings, described by one analyst as “anemic.” Its power and water management business dragged down overall performance. That came after similarly unhappy first-quarter earnings, where profit margins were unexpectedly narrow.
But not all analysts feel the company has become tepid. William Blair & Co. industrial analyst Nick Heymann expects GE’s profit margins to recover, albeit very gradually, in the second half of 2013.
Improving margins consistently and clearly, alongside an efficient winding down of financial revenues, is key to investor confidence in General Electric, Heymann told International Business Times last month.
In the industrial sector broadly, demand for products has stayed low lately, as commercial real estate markets have lagged this year.
Economic weakness in China and Europe has also left infrastructure somewhat neglected.
General Electric should do better in coming years if an improving economy boosts its sales and orders, according to a William Blair & Co. research note. Upcoming earnings from U.S. industrial companies could show record margin gains in the sector.
But the final words from Barclays are: “Owning GE at present has to boil down to whether you believe it will prove more aggressive than expected.… With the stock underperforming yet another year, we would really hope that management addresses these issues. We’ll see.”
GE shares stood at $23.88 late Thursday morning, down 1.82 percent.