General electric (NYSE:GE) is commonly regarded as one of the oldest and well-diversified companies of our time. General Electric is a proxy for everything from products like kitchen appliances and light bulbs to aviation and energy. Indeed, the company is looking more like an industrial conglomerate every passing day. Thanks to the ingenuity of Jeffrey Immelt and his team for making strategic acquisitions that bodes well with its existing industrial lines of businesses and the downsizing of the company’s operations in GE Capital. A look at the performances of the shares of General Electric in the last ten years shows that they have lagged behind when compared with the broad stock market and the industrial sector but all that may soon be a thing of the past as the stock is poised to outperform considering the following three notable strengths of this multinational corporation.
- The Recent Growth in GE’s Industrial Incomes is Sustainable
- Warning! GuruFocus has detected 7 Warning Signs with GE. Click here to check it out.
- GE 15-Year Financial Data
- The intrinsic value of GE
- Peter Lynch Chart of GE
The growth of GE’s revenues from its industrial segment which includes Oil & Gas, Power & Water, and Aviation is a bright spot value investors should focus on to understand the long-term viability of General Electric once the nightmare brought on by GE Capital is finally dealt with via divestment. Revenue from GE’s industrial segment for the first quarter of 2014 was reported to be $24.5 billion which was an increase 8% when compared to the corresponding quarter in the previous fiscal year. Profit from GE’s industrial segment for the quarter inched up to $3.3 billion or 12% increase. Also, the revenue growth from GE’s industrial sector was boosted by its Oil & Gas unit with a 27 percentage basis and accompanied with a 37% increase in profit.
Overall, GE’s first quarter revenues for 2014 fiscal year inched up slightly by 2% when compared with the revenues it reported during the same quarter in the previous year. This rate of growth in revenues outpaced the average within GE’s industry by 0.6%.
- Substantial Growth in Global Power Business makes GE-Alstom Deal a steal
That GE has successfully acquired the majority stake in Alstom is no longer news. However, the extent to which this transaction will impact the business of General Electric to the benefits of shareholders should continue to be explored. Alstom gained global recognition for its top of the range sets of hydro, steam and gas turbines that have been accepted and used by power plant operators in the length and breadth of Western Europe. For GE, having Alstom’s power turbine business in its fold comes with the opportunity to win long-term servicing contracts from the many operators of the power-generating plants that deploy Alstom’s power turbines in their operations. In fact, the world is gradually turning to gas turbines for the generation of electricity and a recent report shows that in the United States alone, more than 40% of power generation by year 2020 will come from gas turbines meaning that the Alstom deal will earn GE enormous growth in revenues and profits in the near future. Also, it is projected that by 2030, the global expansion in power generation will go up by 54% and 70% of power plants will then be utilising gas and steam turbines.
- GE continues to Grow its Backlog of New Business
In 2013, GE’s Chief Executive, Jeffrey Immelt, declared that: ‘’we have the biggest backlog of new business in the company’s history.’’ GE’s backlog as at that time was reported to be $223 billion and it was more than GE’s revenue for 18 months. GE continues to secure several major orders for its industrial segment and $126 billion backlog was reported for first quarter of 2014; for example, arecent report in Bloomberg says that GE has signed a deal worth $604 million for the supply of 230 megawatts of wind turbines to Casa dos Ventos of Brazil. Also, a week ago, a report in Reuters said that GE Aviation was close to landing a supply order worth $2.6 billion from the American Airlines for 200 CFM International engines to equip 100 Airbus A320neo jets.
Opinions of Informed Analysts about GE
Many informed analysts are giving bullish indication about GE at this time by putting their weight behind the stock. According to a report in CNN Money, 7 out of 16 polled investment analysts rated GE stock as a buy, 1 rated it as outperform, 8 rated it as hold, none rated it as underperform and none rated it a sell.
In a nutshell, General Electric is a growth stock that is worth monitoring by investors who have the company’s long term viability in mind. Within the last fiscal year, the share price of GE gained 17% and while there is no consensus among analysts about a target price, the average target price recommended for GE by many analysts is $28.9 – before the release of GE’s Q2 2014 results on July 18 - meaning that the stock is a buy at the price it is trading currently.