General Electric (GE), the popular industrial company known for its wide portfolio of investments, financial, home appliance, medical imaging, industrial machinery, showed in the previous quarter that it can recover from the shaky markets, and bad financial investments.
While the company's profits were down 12 percent from the previous quarter a year earlier, the company has shown recovery in financial investments, and growth in industrial technologies, which grew by 15 percent. Revenue from GE Capital fell 12 percent, to 11.4 billion, contributing 36 percent to the company's operating profits, with the remaining 64 percent being from industrial. The finance arm of the company, which was under control by the US Federal Reserve, got Fed approval on May 16th of this year, strengthening dividends.
As of Friday, GE's board of directors authorized regular quarterly dividends of $.17 per share, causing the stock price to rise .20 points, or 1.05 percent. I foresee this as a show of optimism now that the company has received authorization to receive payments from GE Capital. The initial dividend recently authorized totaled $4.5 billion, showing growth in the company's weak financial arm, amidst global market panic.
Company CEO Jeffery Immelt included plans to repurchase $12 billion in common stock later this year. The company stands to do well under quantitative easing from the US, and European government, as many industrial purchases are made using credit. With the reduction of Chinese interest and deposit rates yesterday, global markets showed optimism in a reduction of borrowing costs, which are often used to purchase industrial equipment.
GE Energy & Coal
The energy division sees 32 percent of segment operating profit for 2011. The company plans to develop new coal plants in China & India. The two countries plan to increase their coal consumption, with China aiming for 70 percent, and India 188 percent, or 3.71 billion tons, and 1.15 billion tons, respectively. The company has cautioned on this approach, citing both countries fail to maintain adequate water supplies, said company Global Strategy Director, Peter Evans.
I foresee China gravitating more toward the use of natural gas powered turbines that provide a set of revenue opportunities for the company, coupled with lower borrowing costs. China's natural gas consumption is expected to grow 502 billion cubic meters in the next 23 years, according to the 2011 World Energy Outlook.
In terms of renewable energy the company - which commands 29.4 percent of the wind market, according to the AWEA (American Wind Energy Association) 2011 report - is beginning to trim down its supply-chain analyzing potential partners. The move comes amidst speculation the US Government may chose not to extend tax subsidies to wind providers, as it has become a political hot potato. While many companies in the energy giant's supply-chain are expected to go bankrupt if the measure fails to receive an extension, GE has seen increases in sales as a result of buyers rushing to purchase before the December deadline, with orders for wind turbines doubling the previous quarter, from the last year.
The industrial giant's healthcare arm contributes 13 percent of sales (2011) and is seeing new developments in growth in the recent months. The company recently received regulatory approval to launch a joint partnership with Microsoft, with the goal of developing scalable Healthcare Applications. The two companies have not outlined expectations or revenue goals for the new venture.
Outside the US, Latin America will also be a stronghold on the company's healthcare export itinerary, which has seen 20 percent growth over the last three years. The company recently completed the acquisition of x-ray manufacturer XPRO, with the goal of exporting x-ray machines to China.
With the company's financial arm beginning to stabilize, the long-term outlook for the rest of the year begins to look positive; the largest risks associated with the company continue to be global economic uncertainty. News of fiscal stimulus that circulated Friday, promoted optimism among investors and could play a pivotal role for the company.
In my opinion, lower Chinese interest rates will allow for purchases from both the energy and healthcare segments, allowing for recent acquisitions and strong contributions to push further gains. Despite concerns in growing markets over stability in new energy facilities, GE has a large enough portfolio of investments and infrastructure to offer counter energy models, dwarfing the competition.
The company's capital division recovery also came ahead of time for some analysts who saw 2013 as a more rational time frame, affording the company $4.5 billion in revenue. As a result of capital stabilization, and foreseeable economic stimulus, the company should be set to best previous expectations. Buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.