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Expect GE's Slow, Steady Improvement to Continue

NEW YORK ( TheStreet) -- Analysts generally expect General Electric (GE - Get Report) to continue its slow and steady improvement, supporting further growth over the next few years.

GE on Friday will announce its third-quarter results, with analysts polled by Thomson Reuters on average estimating earnings of $3.649 billion, or 35 cents a share, compared to 36 cents a share in the second quarter and 35 cents a share in the third quarter of 2012.

Revenue is expected to come in at $35.955 billion for the third quarter, increasing from $35.123 billion the previous quarter and $36.349 billion a year earlier.

GE's shares closed at $24.35 Wednesday, returning 19% this year, following a 21% return during 2012.

"Our analysis indicates that over the last two decades GE's stock performance has closely tracked the company's ROE," wrote Bank of America Merrill Lynch analyst Andrew Obin in a note to clients on Oct. 10. The company's return on average shareholders' equity during 2012 was 12.1%. Obin estimates the ROE for all of 2013 will improve to 13.9%, with further improvements to 14.7% in 2014 and 15.5% in 2015.

The U.S. stock market has been very strong over the past two years, particularly companies with significant financial services businesses, as the recovery from the credit crisis continues. But Obin's analysis is very significant for investors. If the correlation of stock performance to ROE continues, GE's investors can look forward to many years of outsized gains.

Obin rates General Electric a "buy," with a $26 price objective. That implies growth of 7% over the next 12 months. But investors with strong faith in GE CEO Jeff Immelt's continued success in improving GE's performance may have much brighter outlooks for the next several years.

Investors will be looking for progress on GE's backlog of orders. The company's total backlog of equipment and services orders reached $223 billion at the end of the second quarter. With a strong flow of orders, GE's oil and gas revenue during the second quarter was up 9% from a year earlier, to $3.955 billion. However, power and water revenue was down 17% from a year earlier, to $5.715 billion.

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