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Expect GE's Slow, Steady Improvement to Continue

When asked during GE's second-quarter call when "revenues are going to pull through," from the backlog, Immelt said "if you look at Power & Water it is going to strengthen in the second half. And the other businesses, I would say, are already demonstrating some nice momentum."

Credit Suisse analyst Julian Mitchell in his earnings preview for electrical equipment and multi-industry manufacturers on Oct. 7 wrote that his research team expected GE's third quarter to be "similar to Q2 -- decent order growth (which could approach a double-digit rate y-o-y given the easy base in Q312; Q312; note the majority of the Algeria P&W win is booked in Q413)."

GE in September announced three contracts with Algeria's national gas and electric company, for $2.7 billion, which includes providing turbines for six power plants.

Mitchell also expects "solid margin trends (up ~50bps y-o-y in Industrial), offset by very high corporate costs." Looking ahead, "For 2014, we expect the CEO to underline that orders imply a decent pick-up in sales growth, and that the cost-cutting progress YTD should help drive another 50-100bps of margin expansion," he wrote.

"We think the stock will remain subdued short-term as estimates are reduced, but the orders news and solid margin should be prove reassuring, in light of fairly low expectations," Mitchell added.

Mitchell is ahead of the consensus, estimating GE will report third-quarter earnings of $3.802 billion, or 36 cents a share, on revenue of $36.349 billion.

GE Capital

Investors will also be looking for continued improvements and leverage from GE Capital, which during the second quarter upstreamed a dividend of $1.9 billion to the holding company.

GE Capital had $515.5 billion in total assets as of June 30, declining from $533.4 billion a year earlier. The unit's "ending net investment" (ENI), excluding non-interest bearing liabilities, cash and equivalents, was $391.2 billion. Immelt has said his goal for GE Capital's ENI is a further reduction to $300 billion to $350 billion by the end of 2013.

Despite the continued large dividend payments to the parent company, GE Capital's regulatory capital continues to increase. The unit's Basel I Tier 1 common equity ratio was 11.2% as of June 30, increasing from 10.1% a year earlier.

GE's Stock

General Electric's shares trade for 13.5 times the consensus 2014 EPS estimate of $1.80. The consensus 2015 EPS estimate is $1.94.

Based on a quarterly payout of 19 cents, the shares have a dividend yield of 3.12%.

GE Chart GE data by YCharts

Interested in more on General Electric? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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