Friday, January 20, 2012

Analysts Positive on General Electric, Wall Street Journal Cautious (GE)

MarketBeat both delivers the first part of the post and tips us to the second.
Talk about doing it all.
With the DJIA up 54, GE is down a penny at $19.14. S&P 500 down 3.85 at 1310.
From MarketBeat:
GE Earnings Reax: Wall Street Thinks You Should Probably Buy It
General Electric is not bringing good things to life today, if by “life” you mean “its stock price.”
The mega-conglomerate and former home of Jack Donaghy this morning reported quarterly results that were a little on the downbeat side, and its shares are down 1% at last check (they were down nearly 2% earlier).
Update: Investors seem to be listening to the bullish analysts: The stock is now back at breakeven on the day. It could well end the day higher.
Earnings fell 18% in the quarter, but managed to meet forecasts. The trouble was revenue, which fell shy of expectations.
Still, Wall Street analysts, who are admittedly prone to always looking on the bright side, see almost nothing but bright sides.
Here’s Jason Feldman of UBS, who has a “buy” rating on the stock:
We expect a lukewarm reaction today as results may be anticlimactic following two positive investor meetings and a dividend hike last month, combined with the stock’s recent outperformance. Segment profit was roughly inline with consensus and UBS estimates (slight miss at Energy/Healthcare offset elsewhere). However, sales of $38B were below the consensus $40B (miss mostly at Energy) with currency likely explaining part of the delta. Despite the sales miss, Industrial margins of 16.2% were above UBS estimates (15.9%) and consensus (15.7%). Orders were strong and supportive of GE’s outlook commentary last month.
J.P. Morgan’s Stephen Tusa, who also has a “buy” rating on the stock, sees good things happening at GE Capital...MORE
A good jumping off point for this morning's WSJ Ahead of the Tape column:

GE Finding It Tough to Move the Needle

General Electric is trying to go from "pretty good," as CEO Jeff Immelt recently described it, to great. Getting there may prove tough.

Fourth-quarter results due Friday are expected to show a 3% drop in revenue to $40 billion and an about 6% increase in earnings to 38 cents a share. Helping GE's performance will be a favorable tax rate and strong jet-engine orders.

But the conglomerate's growth prospects are constrained by a few key factors. The first is GE Capital. Originally meant to grease the wheels of industrial sales, the finance unit became a power in its own right and expanded into mortgages and consumer lending—until getting slammed in the financial crisis. Now it is becoming more bank-like and plans to purchase MetLife's online bank.

Expanding deposits will help develop sources of funds beyond the commercial-paper market. And the move seems to make sense since GE Capital is now regulated more like a bank. But it also signals the finance arm will be on a short leash.

Plus, Mr. Immelt aims to limit GE Capital's contribution to GE's total earnings to between 30% and 40%, versus 46% last quarter. He also has set a goal of shrinking the finance arm's net investments to $440 billion from a peak of $600 billion. Those strictures mean the newly skinny GE Capital can expand only as fast as GE's industrial businesses.

Bob Spremulli, an equity analyst at TIAA-CREF, estimates GE Capital's earnings growth the next few years will be less than 10%. This means, he adds, that GE will need better industrial earnings.
Yet that business faces challenges, too. Pricing pressure has investors worried, for example, that GE may be giving away too much at the bargaining table as it faces tougher competition for service contracts....MORE
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