Barclays analyst Scott Davis said on Monday that "sentiment on GE has clearly been reset higher since 3 months ago, on the back of the GECC dividend announcement," which he sees as "the first of several potential catalysts over the next few years that could lead to significant value creation for GE shareholders."
Just before the GE Capital dividend announcement in May, Davis said that the main catalyst for GE was "gas power generation," and added that the company's "high and rising dividend yield, material share repurchases likely in 2H12 (post Fed dividend decision), improving earnings quality, and de-risking at GE Capital (GECC) also provide tailwinds."
Davis estimates that GE's Energy Infrastructure business will show total second-quarter revenue of $11.5 billion, increasing from $11.2 billion the previous quarter, and $10.4 billion a year earlier, with energy revenue dipping 1% sequentially, but increasing 11% year-over-year, to $8.0 billion, while estimating that oil and gas revenue will increase 9% quarter-over-quarter and 11% year-over-year, to $3.8 billion. The analyst said on Monday that "Current economics (let alone EPA mandates) support coal to gas switching and we are beginning to see this in the data," as "Electricity generation in the US from natural gas sources is now up over 40% y/y and has been pacing at this run-rate for several months." Barclays believes that GE's "turbine service revenues will grow at least 10% annually (at a 40%+ margin) over the next 3 years."
Davis estimates that the Energy Infrastructure business's second-quarter profit will be $1.7 billion, increasing from $1.5 billion the previous quarter, and $1.6 billion a year earlier.
Morgan Stanley analyst Nigel Coe estimates that for GE's Aviation Division, second-quarter revenue will increase to $5.0 billion, from $4.9 billion in the first quarter, and $4.7 billion in the second quarter of 2011, but on Monday expressed concerns that second-quarter "Major Equipment orders could be down mid single digits, driven by tough comps."
Coe said that "GE has formally announced orders for only 100 engines vs. 250 in 2Q11 (although this is a step up from 40 in 1Q12)," although he added that "this can probably be described as a timing issue; the Farnborough Air Show (when many aerospace companies announce large contracts) fell into 3Q12, whereas the corresponding Paris Air Show fell into 2Q11," and that "last year's results were significantly aided by the A320neo program announcement, which provided GE with a number of new orders for the Leap-X engine."