GENERAL ELECTRIC CO. $24 (New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.0 billion; Market cap: $240.0 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.ge.com) recently agreed to form a major new alliance with France’s Alstom SA, a leading maker of electrical-transmission equipment and parts for power plants.
Under the deal, GE will form three 50/50 joint ventures with Alstom. One will combine the companies’ electrical grid operations, while a second will focus on products for renewable energy projects, like offshore wind farms. The third will hold Alstom’s nuclear-equipment division.
In all, GE will pay $10 billion when the Alstom deal closes in 2015. The new operations it brings should add about $0.07 a share to GE’s annual earnings, starting in 2016.
By 2016, GE aims to get 75% of its earnings from its industrial businesses. The remainder will come from its finance division.
As part of this strategy, the company is selling some non-industrial businesses. A recent example is its appliance division, which makes refrigerators, ovens, dishwashers and air conditioners and supplies 6% of GE’s revenue. The buyer, Sweden’s Electrolux, will pay $3.3 billion when the deal closes in 2015.
Meanwhile, GE’s earnings rose 3.3% in the three months ended September 30, 2014, to $3.8 billion from $3.7 billion a year earlier. Per-share earnings rose 5.6%, to $0.38 from $0.36, on fewer shares outstanding. Revenue gained 1.4%, to $36.2 billion from $35.7 billion.
The recent drop in oil prices could hurt sales of drilling gear and related equipment, which accounts for 13% of GE’s revenue. Even so, the company’s earnings will probably rise 7.8%, from the $1.67 a share it will probably earn in 2014 to a projected $1.80 in 2015. The stock trades at a moderate 13.3 times the 2015 figure.
The company recently increased its dividend by 4.5%. The new annual rate of $0.92 a share yields 3.8%.
GE is a buy.
