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GE shares pop 4% after Immelt leaves, giving activist Peltz 'what he wanted'

  • General Electric said Monday Chairman and CEO Jeff Immelt is stepping down.
  • Activist investor Nelson Peltz has a strategy for growing GE by focusing on its industrial business.
  • GE shares jumped Monday as investors bet Peltz will have his way.

Shares of General Electric jumped Monday after the firm said Chairman and CEO Jeff Immelt is stepping down, raising speculation that activist investor Nelson Peltz could have his way in refocusing GE on growing its industrial business.

Peltz's Trian Fund Management has called for GE to cut costs and increase profits in industrial operations while cutting back on financial services. While Peltz did not explicitly call for Immelt to step down, investors speculated this is ultimately what the activist fund was looking for.

"I think this is what they wanted. Certainly they wanted this fast," Jim Cramer said on CNBC's "Squawk on the Street. "

Peltz, the CEO and founding partner of Trian, had no comment to CNBC.

GE shares briefly climbed more than 4.5 percent Monday morning, after hitting a 52-week low on May 18. They were up about 3.8 percent as of 11:17 am ET.

The stock is down 29 percent since Immelt became head of GE on Sept. 7, 2001, and has been the worst performer in the Dow Jones industrial average since that time.

Among activist investors, Trian has the largest stake at 0.79 percent as of March 31, according to S&P Global Market Intelligence. Trian is one of the top 15 investors overall in GE.

The activist fund announced its investment in GE in October 2015. At the time, Trian supported Immelt's strategy and did not ask the industrial giant for a board seat.

Since then, Trian has stealthily increased its influence on management.

On March 10, Fox Business reported the network learned from sources that Trian's Peltz was putting pressure on Immelt because he was "concerned about [GE] missing recent earnings targets."

GE reported fourth-quarter earnings in January that matched estimates on revenue that missed. The firm's latest earnings report in April did top expectations on both the top and bottom line.

Less than two weeks after the Fox Business report, GE said in a filing with the U.S. Securities and Exchange Commission that the firm would cut industrial structural costs by $2 billion over the next two years, and set an industrial operating profit target of $17.2 billion for the year, "based on discussions with Trian."

The fund said in a release then that the industrial operating profit target "is important because it requires management to achieve its EPS targets in a high quality manner" and that Trian "will continue to hold management accountable to its commitments."

To be sure, simply changing the CEO will not solve all of GE's problems, analysts said.

"The early departure of CEO Immelt raises concerns that 2017 estimates could fall short and certainly underscores our view that 2018 EPS likely needs to come down substantially," Vertical Research Partners analyst Jeff Sprague said in a note Monday.

In addition, back when the Fox Business report speculating about Immelt's departure came out, JPMorgan's Stephen Tusa reiterated that "GE is an expensive stock. "

John Flannery, current president and CEO of GE Healthcare, will take Immelt's place as CEO on Aug. 1 and become chairman and CEO effective Jan. 1, 2018.

Flannery "may be inclined to take a hard look at the oil & gas division, which has been hurting GE profitability," said David Pratt, MCAM-International President, said in an emailed statement to CNBC. MCAM maintains an archive of documents related to patents and other intangible assets from many countries.

Pratt also expects Flannery to use GE's technological know-how in improving industrial products and to push for more cybersecurity in GE's data and supervisory system that runs power plants, the electric grid, wind turbines and heavy manufacturing.

If the new CEO does also look more at GE's energy operations, Peltz may be supportive.

Last October, when GE and oilfield services company Baker Hughes said they would form a new, GE-controlled firm, Peltz said the agreement is "a great deal." The tie-up should allow GE to compete effectively with Baker Hughes' rival Schlumberger and benefit from tax advantages, Peltz said.

— CNBC's David Faber, Chris Hayes and Lauren Thomas contributed to this report.

Watch: Trader says changes will occur faster at GE