The insurance update from General Electric (NYSE: GE) shows that the costs are higher than we expected, but don't fundamentally impair the turnaround—but rather indicate that the turnaround will be more complicated and will take perhaps two to three years. New CEO Flannery suggested that a more aggressive breakup of GE is possible but this remains murky.
At their much-anticipated investor day, industrial conglomerate General Electric (NYSE: GE) set a low bar for their turnaround plan. Investors are aggressively selling GE shares--we believe that management set the bar so low that investors worry about the company’s future. Also, the aggressive selling is probably also driven in no small amount by anger/frustration, tax-loss harvesting and year-end window dressing. We recommend investors keep their GE shares. We are reducing our Buy limit to 30 but believe the company is finally on the right track.
Printing and technology services company Xerox (NYSE:XRX) announced that Ashok Vemuri will be the new CEO for its business process outsourcing company following its spin-off. The new company will be named “Conduent, Inc.”
With an impressive and completely new turnaround management team in place, this company is redirecting its focus toward paying down its debt, lowering interest costs, streamlining operations and re-investing to help generate new revenue growth. As the market sees the company grow its cash flow and reduce its debt, investors should give the stock a higher multiple. Some patience may be required, but shareholders can take comfort from the fact that their interests are aligned with a buyout sponsor that still holds a 70%+ stake in the company.
Communications equipment and services provider Motorola Solutions (NYSE:MSI) reported encouraging 1Q16 sales and earnings but the shares declined 5% as a UK regulatory launched an investigation of its Airwave acquisition.
Amazon joined Apple in reaching a $1 trillion market capitalization. $1 trillion is about the same as the total value of New York City property and the total value of loans at JP Morgan, the nation’s largest bank in terms of assets. Jeff Bezos’ $160 billion stake would place him (personally) as the #33 largest company in the S&P 500 in terms of market cap, next to Coca-Cola, Disney and Netflix. We aren’t bold enough to predict whether the shares will continue upwards or if they are in a bubble reaching maximum inflation. Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached.
EV/EBITDA: What Is It & Why Are We Using It More?
In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple. We thought it might be useful to describe this measure and why we like it.
This Forbeswrite-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.
George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."