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GE turned the lights back on for its shareholders last week.

General Electric (ticker: GE) announced Friday that it plans to sell off the bulk of its finance and real-estate assets in the next two years to focus on churning out turbines, X-ray machines, engines, and locomotives. News of the dramatic shift sent shares up 10.8%, to $28.51, after a 3% rise on speculative buzz Thursday. The gain is well-deserved: GE is choosing a good time to sell, because the market for financial and real estate assets has rebounded sharply since the 2008-09 financial crisis. U.S. commercial real estate in particular has fetched record prices of late, drawing buyers from around the world who are taking advantage of low interest rates. (See related story: “Biotech Star Illumina’s Bright Future Is in Its DNA”, March 19, 2016.)

GE will return much of the sale proceeds to shareholders, authorizing $50 billion of share buybacks, equal to about 17% of the company’s current market value. Its annual dividend, now 92 cents a share (yield: 3.2%), is set to stay flat through 2016. The company said it could rise after that, but with a payout ratio of 58%, GE will need to show solid profit gains first.

Jeffrey Immelt, CEO of GE since 2001, is taking the company back to its industrial roots. Photo: Andrew Harrer/Bloomberg

Investors cheered the news as a long-overdue change of direction. Barclays analyst Scott Davis, who previously predicted CEO Jeff Immelt’s demise, even used the word “redemption.”

While Immelt’s job might not be in jeopardy, investors who hold the stock may want to leave before the lights begin to flicker. After Friday’s gain, the shares trade at 16 times 2015 earnings expectations, which could shift as analysts come to grips with the changes. That is a rich multiple for a company putting all of its chips into industrial businesses that have boosted operating earnings at an average of 1.4% a year for the past four years.

United Technologies (UTX), which also trades at 16 times estimated earnings, has grown operating earnings by an average 4.9% over that period. Honeywell (HON), trading at 17 times, has grown earnings at a 16% clip.

Although GE stock will probably be buoyed by its dividend and the narrative of a turnaround story, there is considerable risk that the stock will tread water. Investors would be wise to take their gains.

“Here’s the problem: The assets they have deployed in the finance unit were generating a lot of earnings,” says Jack De Gan, chief investment officer at Portsmouth, N.H.-based Harbor Advisory, which has held GE shares for about 20 years. “As they sell those down, they have to replace them with industrial earnings or share buybacks. There’s going to be a period of time where earnings will be stagnant.”

De Gan applauded GE’s decision to sell the finance assets, but doesn’t see much upside left in the stock in the next year or two: “The Street will get bored waiting.”

GE’S ANNOUNCEMENT WILL take investors and analysts a while to fully digest, and any projections will be highly speculative. In short, the company intends to drastically shrink its finance arm, GE Capital, selling off about $200 billion worth of real estate and consumer and commercial lending assets, adjusted for liabilities. GE has gradually shrunk the finance arm since the credit crisis by selling or spinning off assets, including spinning off its credit-card business last year into a new public company called Synchrony Financial (SYF). GE Capital accounted for 57% of the company’s operating earnings in 2007, shrinking to 42% last year. If the company’s plans go as expected, GE Capital will account for just 10% of earnings in 2018.

The company has already agreed to sell $26.5 billion in real estate assets to Blackstone (BX), Wells Fargo (WFC), and others. In the short term, the moves will wreak havoc on GE’s income statement, leading to $16 billion in write-downs in the first quarter alone.

GE will retain some financing businesses, including aircraft leasing, health-care-equipment financing, and energy lending that support its core industrial businesses.

It is understandable for investors to want to participate in GE’s return to its roots. The company holds substantial competitive advantages in growing areas such as aviation and medical equipment. And industrial companies garner higher price/earnings ratios than financial companies—and less regulatory attention. GE says it expects industrial earnings per share to grow at double-digit rates in the long term, driven by organic growth and share buybacks.

But the company has work to do if it wants to convince the Street that its mix of industrial businesses can outperform. Investors have spent years waiting for these businesses to experience a renaissance, which always seems to be just around the corner. What’s more, GE has been increasing its exposure to oil and gas equipment in the past few years—it accounted for 17% of industrial revenue in 2014, up from 11% in 2010—and now could face declines in that business.

Longtime investors are pleased by the changes announced last week, but might not stick around. “I’m looking hard at moving on and watching from the sidelines,” says Paul Jackson, a Massachusetts money manager who has held GE stock on and off since 1999. “I hear people saying now it could go to $30. I’m not going to sit around for it to rise two bucks. I think it might be time.”

-- Additional reporting by Robert Milburn

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