Why General Electric Should Scare Caterpillar and Schlumberger

General Electric (GE 1.18%) will release its quarterly report on Friday, and the stock has recently traded at levels not seen since before the financial crisis. GE has recovered largely from huge strategic moves that go back to the company's industrial roots, and even though General Electric earnings could come in flat this quarter, its forays into oil and gas services and mining equipment show the breadth of the company's reach. As a result, shareholders in heavy-equipment maker Caterpillar (CAT 0.05%) and oil-services giant Schlumberger (SLB +0.07%) need to keep a closer eye on GE than ever before.

General Electric has transformed itself since the financial crisis. Before 2008, the company had greatly enhanced its financial arm, reaping the benefits that the financial industry offered. But in response to the mortgage meltdown, GE reemphasized core businesses in alternative energy, aerospace engines, and electrical infrastructure. Since then, General Electric has added other business moves that put it in a strong position to benefit from the economic recovery. Let's take an early look at what's been happening with General Electric over the past quarter and what we're likely to see in its report.

Stats on General Electric

Source: Yahoo! Finance.

Will General Electric earnings keep recovering?
In recent months, analysts have gotten somewhat more cautious about the prospects for General Electric earnings. They've cut a nickel per share from their third-quarter estimates, although they've had more limited reductions of just over 1% for their full-year 2013 and 2014 projections. The stock has continued to advance, posting a 4% gain since mid-July.

General Electric began the quarter by announcing the completion of its acquisition of Lufkin Industries, which adds Lufkin's expertise in pumping and lift equipment to GE's already extensive energy portfolio. The company now offers a wide array of energy services, making drilling equipment for both land- and sea-based operations as well as sensors and measuring devices. In particular, General Electric has focused on the growth potential of undersea drilling, with blowout preventers and other equipment designed to assist in the harsh conditions deepwater drilling involves. Schlumberger has answered the competitive call by joining Cameron International in the OneSubsea joint venture, but General Electric has the ability to put up a strong fight.

General Electric's expertise in liquefied natural gas processing also won it a big contract in Russia, earning $600 million to supply equipment for an LNG project there. With a big rise in LNG activity, General Electric could benefit from similar deals around the world. Schlumberger has recognized the value of the LNG industry, but the field remains wide open as expansion is only now starting to accelerate.

Meanwhile, General Electric has also worked toward advances for its mining division, announcing last month that it had found a new type of battery technology designed to improve performance for its scoop transport equipment. The announcement shows that GE is still committed to the mining segment even though conditions continue to be extremely weak in the industry. Caterpillar has been one of the worst performers in the Dow this year, as a combination of sluggish construction activity and the collapse of key commodity markets has left it facing potentially several years of unattractive results. That makes GE's timing look suspect, but if commodity prices rebound, then General Electric will seem prescient in its decision to move forward.

In the General Electric earnings report, look at the breakdowns for financial results by division to get a better sense of what's doing best lately. If the energy and mining segments outpace what Schlumberger and Caterpillar are able to accomplish, then General Electric could establish itself as a big threat to both companies in the future.

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