GENERAL ELECTRIC CO. $25(New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.1 billion; Market cap: $252.5 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.ge.com) 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.
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%.
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