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Plan to Shrink GE Capital a Needed Shot in the Arm for GE

Shareholders will be rewarded with higher quality earnings going forward as GE takes the next step in transforming the company, writes Morningstar’s Barbara Noverini.

By announcing the $26 billion sale of its real estate portfolio this morning to Blackstone,

Long viewed by the market as the primary source of risk in General Electric’s portfolio, we believe management can now fully focus on GE's stalwart industrials portfolio, which we believe is poised to benefit in the near-term from increased investment in R&D that has revitalized the company’s industrial products portfolio. With 90% of General Electric's earnings expected to originate from its wide-moat industrial businesses by 2018, we believe shareholders will be rewarded with higher quality earnings going forward. We plan to incorporate this new information into our discounted-cash flow model, including about $6 billion in cash costs related to the business exits, and a higher consolidated tax rate going forward. However, we expect that any impact to our current fair value estimate of $30 per share will be neutral to positive.

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About the Author

Barbara Noverini

Senior Equity Analyst

Barbara Noverini is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She covers diversified industrials and waste-management providers.

Before joining Morningstar in 2011, Noverini was a research analyst for DeMatteo Monness, a boutique broker/dealer, for five years. From 2001 to 2006, she was a researcher in litigation services for Round Table Group, which is now a part of Thomson Reuters. She began her career as a quality assurance analyst for Hewitt Associates.

Noverini holds a bachelor’s degree in psychology from Northwestern University and a master’s degree in public health informatics from the University of Illinois at Chicago. She also holds the Chartered Financial Analyst® designation.

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