General Electric Has Things Going For Itself Despite Weak Earnings Guidance For 2015

| About: General Electric (GE)
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Summary

GE is refocusing its operations on its industrial divisions while trimming down its financial division. The spinoff of Synchrony Financial and sale of GE Money Bank are examples.

The agreement with Alstom to acquire the Power and Grid business is likely to be finalized next year and lead to cost savings worth $1.2 billion and EPS accretion in.

GE is in a deal to acquire the Subsea Electric Actuator line from Oceaneering International. The acquisition will speed up the company’s operations in the oil and gas sector.

While announcing revenues and earnings of $36.2 billion and $0.38 per share for the third quarter, the EPS projected for next year stands at $1.70-$1.80, which is rather weak.

GE seems more than capable of withstanding oil price volatility in the long run, as it focuses on its core business and takes steps to strengthen itself.

General Electric (NYSE:GE) seems to have taken a lot away from its downfall following the financial crisis in 2008 and has been strategically repositioning itself. Some of its alliances formed in the last one year have led many investors to believe that the company is once again transforming into the industrial giant that it was popular for nearly a decade ago. While doing so, it is shedding its roots from its financial division which took the company down with it, when the economy dipped during the recession. However, it goes without saying that the GE cannot take steps to completely wipe out the division all at once. The steps come as small ones, but are ones that are actively renewing investor confidence in the company.

The spinoff of its credit card unit, Synchrony Financial is evidence of the fact that the company is reducing its financial footprint. The IPO for the company was held during the middle of the year and raised nearly $2.9 billion. This step was part of the company's target to reduce the division's earnings from half to nearly a third by 2015. Furthermore, the sale of GE Money Bank AB is also another step taken by the industrial conglomerate to refocus itself towards divisions that serve its core business well.

Another deal undertaken by GE during the year, that has received considerable attention is its arrangement with Alstom (OTCPK:ALSMY) for the acquisition of its Power and Grid business. With the deal expected to close during the earlier part of next year, the synergy is likely to allow GE to generate almost $1.2 billion in cost savings after five years. The deal is one that will allow GE to expand its energy assets and strengthen its presence in the European region; factors that are likely to bode well for the company and subsequently its performance during the upcoming year. Moreover, an accretion of adjusted EPS, from the deal, is possible in the next one year of the finalizing of the deal. The deal is a good move on behalf of GE as it holds nearly $57 billion in cash reserves overseas, which it will utilize to pay for this deal and make tax savings in the process as well.

GE is also concentrating on growing its subsea technology and operations, as it comes close to closing a deal to acquire the Subsea Electric Actuator line from Oceaneering International (NYSE:OII) by the first quarter of next year. The deal is one that will speed up the company's operations in the oil and gas sector, bringing with itself technology that is likely to integrate well with GE's existing technology. GE shares reacted positively to the news climbing nearly 0.53%.

Speaking of its financial performance for next year, the company's guidance came in rather weak in its announcement last week. While announcing revenues and earnings of $36.2 billion and $0.38 per share for the third quarter, the EPS projected for next year stands at $1.70-$1.80; 5% higher than the earnings projected for 2014. Industrial earnings are expecting a rise of nearly 65% in the following year, while its capital earnings are likely to be 20 cents lower than the current year estimates. The aviation division of the company should see sustained growth in the following year as airlines continue to make purchases, while the company's Healthcare segment could remain flat in its performance or see no growth when compared to the current year. Transport division is set to witness reasonable growth, with demand picking up in the US in particular. The Alstom deal could bring a boost to the assets of the Energy Management and Lighting Appliance segment in the next year, which is expected to expand modestly as well. However, the CEO of the company, Jeff Immelt, has remarked that the company's earnings could take a hit next year on account the high oil price volatility and serve as a hurdle in GE's plants to expand its industrial operations.

All in all, it seems as though GE has been making some positive changes to its operations and the financial crisis was something that taught the company its lesson. The stocks for GE trade around the $26 mark, offering investors a dividend of $0.88 and a yield of 3.50%, which is fairly good. Analysts project prices to reach $28.22 over the course of the next 12 months, as the share trades at 19.73x its earnings at the moment. As the company focuses on aligning itself with its core business, its diversification, latest acquisitions and sell offs indicate that it is perfectly capable to weather the storm in the international oil market, and is not likely to sustain any permanent damage in the process. The Alstom deal alone is expected to offer GE growth opportunities for the future, which could offset any downturns in the business. Indeed revenues might tumble as the oil price volatility weighs down the company, but any dip in share prices could prove to be an ideal entry point for investors. GE doesn't seem to be the same company it was during the financial crisis and many investors have stopped viewing it as the financial catastrophe that it was back then. It is a company that has been able to come out on top from the damage that was sustained and is actively pursuing opportunities that will allow it to shield itself against any uncertainty in the future. An investment in GE is one that could be a stable one in the long run due to its fine long term growth prospects. Investors could find the current price and future price declines, if any, attractive for share purchases for their portfolio.

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