A good piece in MarketWatch this week on the "Global Gorillas" that are well-positioned to take advantage of the long term growth opportunities in faster growing emerging markets. General Electric (GE) was a mainstay on that list. This American Manufacturing icon has been in my account for quite some time and is a core position is my income portfolio because of its high yield and capacity for increasing payouts going into the future. The company has done a solid job over the last few years transforming itself to a more efficient enterprise that should be able to provide consistent and predictable growth in the years ahead. It has lessened its revenues and profits from its financing businesses significantly and has shrunk its balance sheet. It also shed its less predictable media assets to Comcast. At the same time it has increased its exposure to medical and industrial demand both here and internationally. Through a series of acquisitions it has rapidly become a major player in oil services. The effectiveness of the transformation is apparent in its recent earnings report.
Positives from this week's earnings report:
- The company reported a better-than-expected 7.5 percent increase in fourth-quarter profit mainly due to increased revenue at its units that make jet engines and oil services equipment.
- Order backlog hit a record $210B up $7B from the third quarter.
- Revenue growth and backlog would have grown even more impressively except for caution ahead of wind energy tax credit expiration (it has since been extended as part of the fiscal cliff deal).
- Earnings per share after items were 44 cents a share, a penny ahead of estimates.
- The jet engine division notched a 22% profit increase Y/Y, oil & gas profits were up 14% Y/Y.
4 additional reasons GE still make sense for value and income investors at $22 a share:
- The stock yields 3.6% and its payouts are up 90% since the end of the financial crisis. Given its profit opportunities and its dividend payout prior to the financial crisis, I would look for dividends to increase at the high single digit/low double digit rate in the years ahead.
- GE sells for less than 8x operating cash flow and 12x forward earnings, a slight discount to its five year average (13.6)
- The company has been a consistent deliverer of earnings reports for the past three years. It has 13 straight quarters of either hitting or beating estimates (11 beats, 2 meets).
- Revenue is expected to increase some 6% to 7% in 2013 and the stock sports a very reasonable five year projected PEG (1.19) for a mega cap with a generous yield.