by Larry Gellar
General Electric (GE) recently released its earnings report for the first quarter, and the results were impressive. Although net income declined 12% on a year-over-year basis, earnings per share were 1 cent higher than analysts were predicting. Revenue of $35.2 billion was also better than analyst expectations, and that number represents a 4% increase over last year's revenue, excluding NBC Universal. General Electric sold its share of NBC to Comcast (CMCSA) in January of 2011. In fact, the specific results of General Electric's business were impressive as well. Most importantly, General Electric's industrial business experienced a 10% rise in operating profit, caused by a 14% increase in revenue.
That broad category includes the company's operations in healthcare, energy infrastructure, aviation and transportation, and orders for industrial equipment were up big during the quarter as well. Non-industrial businesses such as General Electric Capital performed well too. Indeed, the financing arm of General Electric saw an increase in profit of 6%.
General Electric's ability to succeed as one of the world's largest conglomerates is a product of its terrific management team. Considering shares were trading below $20 at the time of this writing, I definitely see a buying opportunity for investors. Furthermore, investors who prefer their returns come in the form of dividends should especially consider General Electric because of the stock's 3.5% dividend yield.
Compared to similar companies like Siemens (SI), Hitachi (HIT), 3M (MMM), General Electric's statistics look pretty good. General Electric's price to earnings ratio of 15.83 and price to sales ratio of 1.39 are about average compared to those other companies, although General Electric's growth possibilities should make these ratios look more enticing. In fact, General Electric has the highest margins (9.75% net profit, 41.77% gross, 13.64% operating) out of those companies with the exception of 3M. I would take that as a sign that General Electric still has room to expand in a profitable manner, whereas Siemens and Hitachi may have less growth potential.
One place where General Electric is looking to grow is Australia. John Anderson was named in January as the senior regional executive overseeing the company's energy operations in Australia, New Zealand and Papua, New Guinea, and he just did his first interview since taking the position. Specifically, General Electric hopes to provide equipment to companies working with resources such as liquefied natural gas, wind power and iron ore. In my opinion, this is a great move for the company because of the huge growth opportunity in Australia in particular.
Some of General Electric's customers in the area include large companies like Apache (APA), Fortescue Metals Group (FMG), and Chevron (CVX), which is one reason why I'm expecting significant revenue gains. In fact, General Electric's most recent Australian deal occurred on April 19th. Specifically, the company's partnership with Safran SA (known as CFM International) was awarded a $2 billion contract by Qantas Airways (QAN) subsidiary Jetstar. CFM International will deliver 78 Leap 1-A engines, which are used for single-aisle Airbus SAS jets known as A320neo's. Considering the big rival for this deal was United Technologies (UTX), this was an important victory for General Electric.
I am also impressed with a new piece of technology from General Electric Intelligent Platforms. That division recently introduced the PEAZ-5565 Reflective Memory Analyzer, and here's what Steve Pavlosky, the relevant Product General Manager, had to say:
There is a continued need for niche communication technologies that move large quantities of data fast with low latency and that are deterministic - and for many of those applications, Reflective Memory is the only viable solution.
Because Reflective Memory works on VMEbus, PCI, PCI Express, and PMC nodes, the PEAZ-5565 Analyzer should be popular with a wide variety of users. Additionally, the PEAZ-5565 Analyzer will have a number of useful troubleshooting features.
While the PEAZ-5565 Analyzer is essentially finished, General Electric Healthcare announced a new deal that should have important returns in the future. Indeed, General Electric is embarking on a joint financing agreement with a venture capital company called NXT2B. Here's how Erik Strömqvist, general manager for the Cyclotrons segment, described the project:
The goal of the project is to develop a turn-key radiotracer infrastructure solution for the production of PET tracers to primarily fulfill the needs of emerging markets, for rural and regional hospitals, and researchers.
These markets are important for General Electric to expand into, and they should have significant demand for this PET tracer production technology.
On a less cheerful note, General Electric is embroiled in a bit of a legal battle regarding events that occurred in 2008. The latest development is that the banks that worked with General Electric on its $12.2 billion stock offering are off the hook. On the other hand, there still remains the claim that General Electric Capital did not properly disclose its exposure to loans, such as the infamous subprime mortgages. I can't imagine the outcome of this trial will affect General Electric's stock price much, but it could still be interesting to keep an eye on.
Overall, the biggest argument in favor of buying General Electric is the 3.50% dividend yield. That's the type of supplemental income that can make retirement easier, and General Electric's financial standing is also top-notch. The company experienced a net change in cash of $5.537 billion in 2011, and operating cash inflow of $33.359 billion played a big role in that. With terrific innovations such as the PEAZ-5565 Analyzer and new techniques for PET tracer production, General Electric is on top of its game. Furthermore, developments in non-U.S. markets such as Australia and the recent earnings report should have investors very excited.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
