The GE Jury's Still Out on Recovery

Leading up to GE's earnings announcement last Friday, three bellwether companies in cyclical industries had already beaten expectations:  JPMorgan Chase (NYSE: JPM) in financials, Intel (Nasdaq: INTC) in semiconductors, and CSX (NYSE: CSX) in railroads. Given its broad portfolio of businesses, I was very curious to see whether General Electric's (NYSE: GE) results would confirm the prevailing notion of an economic recovery.

Looking for signs in the data
In the end, GE's earnings-per-share of $0.21 comfortably exceeded analysts' estimates of $0.16. However, revenue fell just shy of forecasts, at $36.6 billion versus $37 billion.  On a continuing basis, earnings declined 18% from the prior-year quarter to $2.3 billion. Of GE's three largest segments, Energy Infrastructure outperformed the entire firm at 12% earnings growth, Technology Infrastructure was level with an 18% loss, while GE Capital brought up the rear with a 41% drop. (GE is actively reducing the earnings contribution of its financial arm, so the decline is not as dramatic as it looks.)

My concern is that Energy Infrastructure and Technology Infrastructure revenue fell year over year -- one of the most difficult quarters of the Great Recession, which should have set a low hurdle for comps. In that regard, GE's results don't seem to strongly confirm a recovery.

Are GE shares a buy?
To answer that question, let's look at how the company stacks up against its peers in terms of valuation:

*As of April 15, 2010. Source: Capital IQ, a division of Standard & Poor's.

Based on these multiples, GE shares look fairly valued at best. Among conglomerates, I continue to prefer 3M, or GE's German competitor Siemens. As far as the broader economy goes, I do believe that the risk of a double-dip recession is receding, but my preliminary analysis of GE's results hasn't done much to sway me on that question.

Infrastructure is spawning the biggest investment opportunity this year – just not in the U.S.