Barron’s Weekend Summary: Larry Culp, the retired CEO of Danaher, saved General Electric from a disastrous financial situation in October 2018
Cover:
-Larry Culp, the retired CEO of Danaher, saved General Electric from a disastrous financial situation in October 2018. The company's debt load of $112B was growing unwieldy, leading to downgrades from major credit-rating firms and a slashing of its dividend. In 2021, Culp announced that GE would split into three separate companies, GE HealthCare Technologies and GE HealthCare. Since the spinoff, shares of General Electric have gained about 120% and 50%, outperforming the S&P 500 index. The final move is due on April 2, with the parent company renaming itself GE Aerospace (to focus on airplane engines) and the power business being spun off and named GE Vernova.
Interview:
-This week, Barron’s interview features Mary Barra. Mary Barra, the CEO of General Motors (GM), has been in charge of the company since 2013, following its bankruptcy and return to the public market. With a 40-year tenure, Barra has managed a challenging period, including the sale of European operations in 2017, the Covid pandemic, and the rise of electric vehicles. Last year, GM saw a 10% increase in sales and issued operating-profit guidance for 2024, exceeding expectations. However, investors remain skeptical of Barra's agenda, as the stock has only risen by 3% in the past five years, compared to an 80% gain in the S&P 500 index. GM trades at a mid-single digit multiple of earnings, making it one of the cheapest large stocks in the market. Barra recently discussed the company's plans for electric and autonomous vehicles and opportunities in China.
Tech Trader:
-No update this week
The Trader:
-The Nasdaq Composite and S&P 500 are on track to close at new all-time highs, with the Nasdaq Composite set to close the week at a new all-time high of 1.6%. The gains are driven by an economy that is neither too hot nor too cold, with the personal consumption expenditures price index rising 2.4% year over year in January and durable-goods orders coming in lower than expected. The Federal Reserve is considering when to start cutting interest rates, with the federal-funds futures market suggesting that the Fed's most likely course of action this year will be to cut rates three times. This dynamic is why investors are eager to miss out on the rally and believe it can continue. However, two risks loom large: the Bloomberg U.S. Financial Conditions Index, which tracks how easy or difficult it is to borrow money, is near its easiest level since late 2021, suggesting that conditions are likely to tighten, and when financial conditions tighten, the S&P 500 usually drops.
-Snowflake stock has fallen after CEO Frank Slootman resigned and the company offered disappointing guidance. Slootman, 65, oversaw rapid growth at Snowflake, whose software allows companies to analyze large amounts of data. His departure adds uncertainty to the company's growth. Sridhar Ramaswamy, who has been running the company's artificial-intelligence strategy, will assume the CEO role immediately. However, the company's GAAP guidance for fiscal 2025 sales of $3.25B represents 22% year-over-year growth, lower than 2024's 36%. The problem is Snowflake's business model, which allows customers to pay for software on a per-usage basis, which could lead to slower growth when budgets tighten due to a slowing economy.
Features:
-UPS is set to bring investors better returns as the leading package-delivery service seeks to cut costs, increase automation, boost margins, and lift volumes to offset higher expenses from a contract with the Teamsters union. UPS stock has fallen 7% since the company offered disappointing 2024 guidance. However, the stock, now around $148, looks appealing due to its valuation, which is 18 times projected 2024 earnings of $8.28 a share. UPS offers a 4.4% dividend yield, the highest among the 20 companies in the Dow Jones Transportation DJT average. CEO Carol Tome said on the January earnings call that UPS is "rock solid" and confident about the dividend. UPS is valued at $126B and carries modest net debt of $15B. David King, lead manager of the Columbia Flexible Capital Income fund, believes that UPS can execute against a cost-focused program to drive margin expansion and upside in the stock.
-Demand for AI servers is not decreasing, according to Dell Technologies and Hewlett Packard Enterprise. Dell's backlog for orders for AI servers nearly doubled to $2.9B in the fourth quarter, with demand exceeding supply. The company's flagship PowerEdge XE9680 Rack Server, which incorporates Nvidia graphics processing units, is the fastest-ramping solution in its history. HP Enterprise also reported strong AI server demand, with lead times for GPU orders still elevated at 20 weeks or more. The companies' comments are important as some skeptics have pointed to falling lead times for Nvidia's H100 as a sign of weakening demand. Dell and HP's remarks show orders are transitioning to newer products like the H200 and GH200, indicating that demand will remain robust over the longer term.
Europe:
-Norwegian Cruise Line Holdings is expected to report a surprise profit in the first quarter amid record demand, boosting cruise stocks. Despite posting a wider-than-expected loss in the fourth quarter, investors are focused on its strong 2024 outlook. The sector had a stellar 2023, but all three stocks have faced choppy waters early this year, with Carnival and Norwegian down 20% in 2024 and Royal Caribbean down 8% for the year. Norwegian's booked position is currently at a record high due to healthy consumer demand, with some of the best booking weeks in its history since Black Friday in November last year. The cruise operator reported an adjusted loss of 18 cents per share on revenue of $1.99B in the fourth quarter, compared to analysts' expectations of 12 cents per share on revenue of $1.96B. CEO Harry Sommer aims to capitalize on the positive momentum and strong demand for cruise, which resulted in turning the year at record highs in both booked position and pricing.
Emerging Markets:
-No update
Commodities:
-Commodity markets are not performing well due to weak prices, largely due to the weakness of Chinese financial markets. Traditional speculative flows into the commodity complex have been reduced. Indifference and the use of the commodity complex as a source of funds, particularly in precious metals like gold, have contributed to this. Gold ETF holdings have declined, reaching a new four-year low at 82.54M oz., indicating that the market is not fully reliant on traditional financial markets.
Streetwise:
-No update from Jack Hough this week