Tags: General | Electric | credit | GE

General Electric’s Prospects Good as Credit Markets Improve

By    |   Tuesday, 05 Jun 2012 11:48 AM

General Electric (GE) is a behemoth of a stock, but its prospects for growth ahead are strong, analysts contend, as credit markets improve. Increased demand for industrial goods and aviation business also will feed into better results for the conglomerate.

General Electric is one of the largest and most diversified technology and financial services corporations in the world. With products and services ranging from aircraft engines, power generation, water processing, and household appliances to medical imaging, business and consumer financing and industrial products, GE serves customers in more than 100 countries and employs approximately 301,000 people worldwide.

Operating businesses that are reported as segments include Energy Infrastructure, Aviation, Healthcare, Transportation, Home & Business Solutions and GE Capital. GE Capital, which accounted for 31 percent of consolidated revenues in 2011, offers a broad range of financial services and products worldwide for businesses of all sizes. Services include commercial loans and leases, fleet management, financial programs, home loans, credit cards, personal loans and other financial services.

GE Infrastructure equipment orders increased 24 percent to $50.1 billion at Dec. 31, 2011. Total GE Infrastructure backlog increased 14 percent to $200.2 billion at year end, composed of equipment backlog of $52.7 billion and services backlog of $147.5 billion, GE recently reported.

GE-funded research and development expenditures were $4.6 billion, $3.9 billion and $3.3 billion in 2011, 2010 and 2009, respectively. In addition, research and development funding from customers, principally the U.S. government, totaled $0.8 billion, $1.0 billion and $1.1 billion in 2011, 2010 and 2009, respectively, the company said.

Aviation accounts for the largest share of GE’s research and development expenditures with funding from both GE and customer funds. Energy Infrastructure’s Energy business and Healthcare also made significant expenditures funded primarily by GE, management said.

General Electric has a market cap of $192.30 billion in a sector, industrial conglomerates, where the average company size is $6.38 billion. Its trailing 12-month P/E ratio is 14.76 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.16, compared to 1.06 for the sector.

Its projected earnings per share growth for the coming year is 13.55 percent, compared to a sector average of 12.41 percent.

Major trends


Wall Street is broadly bullish on GE, with buy or outperform calls from Oppenheimer & Company, Citigroup Investment Research, Standard & Poor’s Equity Research, Goldman Sachs, and B.P. Bernstein.

“We see two major trends buoying GE's stock price over the next 12 months. The first is our view of continued improvement in credit markets, including declining credit loss ratios, modestly better demand, and favorable lending spreads,” S&P analysts wrote in a report dated April 24. “Given GE's more disciplined credit origination process, we expect these variables to result in increased 2012 profitability at GE Capital.”

“The second is our belief that GE's industrial operations will see continued improvement in longer-cycle businesses, including industrial gas turbines and jet engines, in 2012.”

General Electric next reports on July 20.

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