Warren Buffet exercised some 10.7mm warrants yesterday to purchase the stock of General Electric (NYSE:GE). This makes a lot of sense as a growing majority of the company's revenues are coming from the easy to understand businesses (Ex, locomotives) that make up most of Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) holdings. After looking at the industrial behemoth's earnings report this morning, it is easy to see whey this giant industrial concern looks attractive to the Oracle of Omaha.
Quarterly Results: The company reported solid results overall. Revenues were a bit light but only because of planned asset reductions at GE Capital and a negative forex impact of $132M.
What was truly impressive was the company's order flow. New orders were up 19% in the quarter to $25.7B. This multinational saw orders increase some 17% in struggling Europe, 18% in the United States and 22% in emerging markets. Its backlog of equipment and services at the end of Q3 was a record $229B, up $6B from Q2. Profit from its industrial businesses was up more than 10% Y/Y.
The Transformation Continues: As I have wrote about several times, General Electric continues to transition to a pure industrial play as it jettisons much of its GE Capital finance business and builds on its market leading position in big ticket industrial lines like jet engines.
This latest earnings reports shows continued progress toward that goal. Achieving this goal is important to shareholders, including Mr. Buffett. Financial concerns currently trade around 10x forward earnings and pure play industrial stocks go for ~16x forward earnings. GE is somewhere in between at around 13.5x forward earnings. As the company continues to achieve more revenues & earnings from its industrial businesses, that multiple should rise in line to other industrial stocks like Honeywell International (NYSE:HON) which sells for just less than 16x forward earnings.
Valuation: While investors watch the company worked towards its longer term goal, they are receiving a solid 3.1% yield. General Electric has also raised its dividend payout some 90% since emerging from the financial crisis. I would also look for continued consistent dividend increases over the next few years as the company's grows its industrial revenues & profits.
Frequent readers of my columns know that I have been a long term holder of General Electric as I believe it offers an attractive dividend yield and solid growth prospects. I also believe the company is executing impressively towards its transformational goals. I am honored to have such distinguished company as Mr. Buffett join me in that belief.
Disclosure: I am long GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.