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Blue chip stocks: General Electric powers up in France, cuts its losses in finance

General Electric Co.

Today, we look at one of the leading blue chip stocks in the U.S. General Electric has been making important changes. The final approval of its deal with French industrial giant Alstom SA will open new markets for its power, energy and industrial operations. At the same time, the company continues to trim its money-losing GE Capital division, most recently with the sale of its European equity-financing division to a Japanese bank and $3.7 billion worth of loans in the U.K. Seven years ago, at the height of the financial crisis, GE reduced its dividend for the first time in 70 years. But the current dividend, which yields 3.7%, looks secure.
For a recent report on another U.S. blue chip stock that has undergone key adjustments, read The cloud powers Microsoft past Nokia stumble.

GE continues to cut costs and sell less important assets, which puts it in a better position to withstand the slowdown in global growth. These moves will also spur its earnings when economic expansion picks up.

GENERAL ELECTRIC CO. (New York symbol GE; has received approval from U.S. and European regulators for its alliance with France’s Alstom SA, a leading maker of parts for power plants and transmission gear.

Under the deal, GE will form three 50/50 joint ventures with Alstom: one will combine their electrical grid operations, while a second will focus on products for renewable energy projects. The third will hold Alstom’s nuclear power equipment division.

To win approval, GE agreed to sell some of Alstom’s operations. If you adjust for these sales and other changes, GE will now contribute $9.5 billion, down from the original cost of $13 billion. The company expects to complete the deal by the end of 2015.

The new businesses will add $0.05 to $0.08 a share to GE’s 2016 earnings, and $0.15 to $0.20 by 2018.

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Blue chip stocks: As GE Capital earnings fall, industrial division’s earnings rise on strong demand for power equipment

Meanwhile, GE’s revenue gained 1.5% in the quarter ended June 30, 2015, to $32.8 billion from $32.3 billion a year earlier. Even so, earnings fell 12.1%, to $2.8 billion, or $0.28 a share, from $3.2 billion, or $0.32.

Earnings from GE’s industrial operations (92% of the total) rose 17.7% as strong demand for power equipment offset lower sales to oil and gas producers.

However, earnings at GE Capital (8%), which mainly provides loans to GE’s clients, fell 78.2%. That’s because the company continues to shrink GE Capital to focus on its main industrial operations.

As part of this plan, it recently sold GE Capital’s European private-equity financing business to Japan’s Sumitomo Mitsui Banking for $2.1 billion. It also sold $3.7 billion worth of loans at its U.K. home-lending business.

GE will likely earn $1.30 a share in 2015, and the stock trades at 19.2 times that forecast. That’s a reasonable multiple in light of its plan to cut its reliance on GE Capital. The $0.92 dividend yields 3.7%.

Recommendation in Wall Street Stock Forecaster: BUY  


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