Updated from 10:03 a.m. ET to include GE Capital's contribution of 47% of the parent company's third quarter operating earnings, rather than the unit's 57% of net earnings, since GE's goals are based on operating earnings and not net earnings. Also updated to include comments from Citigroup analyst Deane Dray.
NEW YORK (TheStreet) -- General Electric (GE) has been making significant progress toward its goal of improving efficiency and margins, while making more efficient use of capital as it shrinks GE Capital, however, the investor goals outlined by the company on Wednesday left some analysts unimpressed.
One of GE's most important long-term goals is to lower its liquidity risk and unlock value for its shareholders by moving back toward a stronger focus on its industrial business. The company's financial arm provided 47% of its operating earnings during the third quarter of 2013, but GE CEO Jeff Immelt's long-term goal is for GE Capital to contribute roughly 30% of the parent company's operating earnings, with various industrial businesses providing the other 70%. GE on Wednesday said it was on track to achieve this goal by 2015.
Other goals and expectations outlined by GE on Wednesday included organic industrial growth of 4% to 7% in 2014, the deployment of roughly $90 billion in cash through dividends, share buybacks, acquisitions and organic growth from 2014 to 2016, and an expansion of the company's industrial profit margin to roughly 17% by2016 from the current 15.8%.
The company is also looking for its return on capital to increase to 17% by 2016 from 15% today.
GE had already made tremendous progress in shrinking GE Capital, with the unit's "ending net investment" (ENI), excluding non-interest bearing liabilities, cash and equivalents, declining to $385 billion as of Sept. 30, from $425 billion a year earlier.
But the company in November announced it would would spin off its North American consumer finance business through a transaction that will be tax-free to GE shareholders and include an initial public offering of up to 20% of the equity in the new company. GE expects to complete the IPO "later in 2014," after which it will complete its exit from the consumer finance business through a tax-free distribution of the remaining 80% of the new company to GE shareholders during 2015.
Shedding more financial services assets not only improves GE's liquidity profile, it frees up more capital for eventual return to investors through dividend increases and/or share buybacks. GE last week raised its quarterly dividend on common shares to 22 cents from 19 cents, for a yield of 3.21%, based on Wednesday's closing price of $27.41.
GE during the first three quarters of 2014 returned $13.9 billion to investors through dividends and buybacks. Please see TheStreet's earnings overage for details on the company's third-quarter results.
"The 2014 targets were broadly in line with expectations, with a bit better organic growth at the high end," according to JPMorgan Analyst C. Stephen Tusa, who has a neutral rating on GE, with a $26 price target.
Tusa in a note to clients Thursday said, "we see the story transitioning back to end markets/EPS, where top line growth (rather than restructuring) is likely needed to drive earnings upside versus expectations - this is a more balanced risk/reward relative to the 'self help' thesis that has driven the stock over the last 1-2 years."
BernsteinResearch analyst Steven Winoker rates GE "market perform," with a $27 price target.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV