General Electric (GE): The Blue Chip Industrial Conglomerate Stock

General Electric (GE): The Blue Chip Industrial Conglomerate Stock

With a portfolio of investments ranging from financial, home appliance, industrial machinery, to medical imaging, GE is bound for long term growth.

When reported in April 2012, first quarter earnings 2012 for General Electric were down by 12% from the previous quarter a year earlier. Yet, despite overall earnings, the company has shown recovery in financial investments, and growth in industrial technology by an astounding 15%.

Moreover, GE capital, the finance arm of GE, which was under control by the Federal Reserve, will resume paying a dividend to GE for the first time since the financial crisis. Additionally it will also make a special dividend payment of $4.5B to GE. Many have stated that the money could be used to increase General Electric’s dividend payments to shareholders and/or repurchase shares.

Although GE did not disclose much of how these new dividends would be paid out to shareholders, its Q1 earnings release did state, “We expect to return excess cash from GE Capital over the course of 2012, subject to review by the Federal Reserve. Capital allocation will be balanced and investor friendly.”

In a press release regarding these new dividends, the company also states, “GE plans to accelerate its common stock buyback starting in the second quarter, depending on market conditions.” Additionally, “GE as a whole aims to pay about 45% of its profit back to shareholders as a dividend.”

Taking a closer look at GE’s business segments, its energy division, GE Energy & Coal, brings in 32% of segment operating profit for 2011. Because China and India both have plans to increase coal consumption, GE plans to develop new coal plants in the two countries.

GE’s healthcare arm contributed to 13% of sales in 2011, and is currently experiencing new growth. Recently, the company received regulatory approval to launch a joint partnership with Microsoft, with the goal of developing scalable Healthcare applications in mind. Additionally, the company’s recent acquisition of x-ray manufacturer XPRO will help GE further expand into the medical machinery market in China.

Taking a closer look at GE’s numbers, we see that the 52-week range for the stock is $13.64 - $20.82, and it is currently trading at a little above $20. The P/E ratio is currently at 15.9, slightly above the industry average of 15.7. Operating margin is at 11.5% compared to an industry average of 16.3%. Profit margin is at 8.8% versus an industry average of 8.7%.

Although recently revenue and EPS growth rates have been disappointing, financial performance for the company is expected to pick up by the end of 2012. With an order backlog of $201 billion, future revenues and earnings will without doubt trend higher. Compared to the S&P 500, Industrial Index, and other U.S. conglomerate stocks, GE has done well and outperformed all three indices in the past year.

Overall, GE has been and will continue to be a good stock to own for any investors looking for stability and long-term growth. The company is doing a good job in terms of expanding into growing markets, which will in the long-term lead to higher revenues and stock price. It has an AA+ balance sheet and yields 3.6%. Compared to its five-year average of 14.1, it is now trading at a discount, at 10.5 times forward earnings. S&P gives it a “Buy” rating and a $24 price target. Additionally, Credit Suisse rates it an “outperform.”

See and compare the dividend yields of all of the Dow 30 stocks.

Image: Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Reviews

  • Stewart

    July 10, 2012

    GE Capital almost sank GE and it will rob GE of growth for years, GE milked its capital division and those days are gone. Look for average growth to sub-average growth over the next five years. This might be enough to maintain the dividend but the heady days are over.

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