General Electric Doesn't Connect

Heavy is the head that wears the crown. And when you're a company with a $200 billion market cap already, it seems it takes a lot to move the needle. On Friday, General Electric (NYSE: GE  ) reported numbers that would have sent many a lesser stock flying:

  • Profits were up 21% to $0.35 per share.
  • Infrastructure orders were up 24%.
  • Revenues were down 3.5%, but only because GE unloaded its NBC Universal stake on Comcast (Nasdaq: CMCSA  ) last year. But for that, revs would have risen 7%.
  • GE displayed lesser reliance on the finicky and problem-plagued GE Capital business, where revenues declined modestly.
  • And greater reliance on GE's industrial core, where contract wins for the firm's LEAP-X jet engine at Boeing (NYSE: BA  ) and Airbus helped push the backlog of future business to a record $189 billion.

Meanwhile, the firm's ballyhooed assault on the energy sector is bearing great fruit, with CEO Jeff Immelt promising 17% unit volume growth this year, versus 2010. Across the company, Immelt told investors to expect accelerating sales and earnings growth through 2011 and into 2012. But how did investors react to all this good news?

They sold off GE by nearly half a percent.

What more do you want?
I think the trouble with GE -- and investors' lack of response to its blowout earnings -- is that it's just too big for investors to wrap their brains around. I mean, these guys sell lightbulbs, LEAP-X engines, refrigerators, and nuclear reactors. They dabble in electric cars ... and consumer credit.

The structure goes beyond eclectic. It's downright complicated. So let me boil this down to the essentials: Over the past six months, GE earned $7.2 billion -- 44% more than in H1 2010. Its operating margin now eclipses that of Siemens (NYSE: SI  ) by 140 basis points, and is twice as big as Textron (NYSE: TXT  ) or Hitachi (NYSE: HIT  ) . Management says earnings are also improving -- which suggests better than 44% growth, but let's be conservative and say that by year's end, GE's total haul will be $14.5 billion in profits. At today's market cap, that's less than a 14 P/E on a stock analysts expect to grow 14.6% per year over the next five years -- and a stock that pays a 3.1% annual dividend.

I don't know about you, but GE looks cheap to me.

Rich Smith does not own shares of, nor is he short, any company named above. The Motley Fool owns shares of Textron. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On July 26, 2011, at 9:30 PM, rkonn wrote:

    GE will not be a good investment until Immelt is gone. He has overseen a 65% decline in the stocks worth and cut the dividend by atleast 80%. What kind of leadership is that? He has missed projections and is more concerned about being on the Administration business committee. He must GO!!!

  • Report this Comment On July 27, 2011, at 11:39 AM, Brettze wrote:

    GE shareholders is realizing that GE earnings is fueled in part by ultra cheap aluminum ... GE is fixing aluminium prices indirectly and "legally" perhaps using Jack Welch's Six Sigmas dogma.. Time for GE to swallow hard that aluminium prices has nowhere to go but UP! Then shareholders will know where they stand with GE either holding or dumping GE outright.. Aluminium is a big market that can blow away chunks of heavy industrials earnings once aluminium prices finally caught up with the rest of the metal pack.. Remy copper prices?? Nickel?? Moly? They cause major upheavl for many industrial users after decades of depressed metal prices.. Aluminium is the biggest metal market of all not copper but because of skyrocketing copper prices. Copper appears to be bigger than aluminium but in fact aluminium is the biggest and will continue to outrun the rest of the metal pack !

  • Report this Comment On July 27, 2011, at 11:48 AM, Brettze wrote:

    GE is doing great with wind turbines and can go further with solar thermal energy. This means aluminium so GE can do very well to acquire aluminium operations to supply aluminium for solar concentration technolgies.. It is a cant lose situation for GE.. Why GE continue to push gas turbines is mind boggling with natural gas prices threatening to skyrocket anytime there is a shortage certain to come... the residential customers stand to pay more for natural gas because of increased reliance on natural gas for electriicty by utilites whose first obligation is to provide natural gas for home heating.. Utilites is not trying to keep natural gas demand in balance with supply in the future. Utilites simply erect gas turbines and sell electricity with no regards for their retail customers who will see natural gas rise because of increased electricity generation with natural gas.. So GE ought to start involved in solar thermal technologies to help reduce unnecessary demands on natural gas. GE will lose sales on gas turbines when natural gas prices skyrocket.. Natural gas prices will skyrocket with 100% certainity!

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