Barclays: General Electric Co Needs 'AT&T-Style Break-up"

General Electric Co. 's

faltering share price spurred an analyst recently to revive the call for its break up, saying investors would be more comfortable with a "pure play" infrastructure company. GE, founded in 1889 by none other than Thomas Edison with help from the Vanderbilt family and the investment bank Drexel Morgan & Co., had its day as a member of the 1960s' and 70s' "Nifty 50" and the 20-year reign of "The Jack Welch Premium" that ended in 2001. But recently, "most investors have given up on the story," Barclays' Scott R. Davis said in a note calling for "an AT&T style break up." Shares of the Fairfield, Conn.-based mega cap conglomerate are down more than 6 percent in the year to date versus a gain of more than 4 percent for the Dow Jones Industrial Average, of which GE was an original member in 1896. Diversified conglomerates as a business model became especially fashionable in the post war period partly on the notion that a downturn in the demand cycle of one industry could be offset by upturns in another. Notable of the day examples included Gulf+Western and ITT Corp. But the practice began to fall out of favor in the 1970s as high interest rates ate into profits and the notion of “core competency” became a new mantra. Talk of breaking up GE has been around for a long time, surfacing most recently a half-dozen years ago when earnings hit a rough patch during the financial crisis. Barclays' Davis thinks times are ripe again for divestitures. “GE needs to consider a full, AT&T-style breakup,” Davis said. “Investors are comfortable with GE becoming a pure play global infrastructure company but want that defined more narrowly.” The company recently exited its consumer appliance business and sold its remaining holdings NBC Broadcasting only last year. Scott said next on the list should be GE Capital which he said creates volatility, politcal issues regarding its tax structure and added risk in the event of financial downturns. Enthusiasm for spinning off the GE Medical unit is gathering momentum and Scott likes the idea. "There's an urgency felt among its shareholder base for GE to make changes," according to Scott, who rates GE at Overweight with a $32 target. On Friday, GE traded recently at $26.32 a share, up 0.42 percent.