Stock of the Week
NYSE Symbol: GE
Price as of 1/22: $16.11
Earnings season is upon us and the numbers have been great. A number of blue chip stocks like Intel, Google, IBM, and Goldman Sachs are reporting better than expected earnings. Unfortunately, investors have been unimpressed, selling the stocks after they reported. President Obama took a nice swipe at the financials this week creating a lot of uncertainty on how the government will reign in the power of the big banks and investment banks. One of the few blue chips to actually rally following earnings is this weeks' featured stock, GE. General Electric has been held back by their financial arm which has a large exposure to the weak commercial estate business. I featured GE a year ago and the stock has gone nowhere, but the recent earnings point to brighter skies in the future which should push the stock higher as the economy recovers.
On Friday morning GE reported earnings of $2.94 billion or 28 cents a share, beating estimates by 2 cents. Unfortunately earnings fell 19% year over year as revenues fell 10.4% to $41.4 billion. Managment indicated that GE's environment has improved and there were some encouraging signs at year-end. Capital Finance executed well in a difficult environment, earning $300 million for the quarter and $2.3 billion for the year. Capital Finance reserves increased $0.7 billion to $8.1 billion. Every segment at GE Capital was profitable with the exception of the commercial real estate, which continues to operate in a difficult environment. GE completed 100% of their 2010 long-term funding plan for GE Capital, and raised about $4.4 billion in 2010 that will go towards 2011 plans. Looking toward to 2010, earnings will be flat with 2009, but sets the stage for solid growth in 2011 and beyond. Moreover, GE also mentioned their strong cash position, will
provide opportunities for GE creating long-term shareholder value.
As the economy recovers GE earnings estimates should be ratcheted higher. Currently the stock trades for 16 times reduced earnings, one times sales, and just 1.4 times book value of $11 a share. Pretty good value for the bluest of the blue chips. The other issue with GE is the dividend. Currently the pay out is 40 cents a year or 2.4% yeild. GE is optimistic they will raise their dividend once again, hopefully in a year or year in a half. However, the stock will be much higher once they are in a position to raise the dividend once again. Buying the stock now will provide a nice yield once they are in a position to boost that dividend.