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Why General Electric Stock Can Still Shock Investors After Alstom

Stocks in this article: GE ALSMY SI

NEW YORK (TheStreet) -- General Electric (GE) finally won its $17 billion bid for the assets of struggling French company Alstom (ALSMY). While this may have been a surprise to many investors and analysts, to GE CEO Jeff Immelt it was only a matter of when, never if.

GE stock closed Monday at $26.28, down 6% on the year to date. With its shares still down 35% from their 2007 high, investors should jump on GE now.

At the current price and with the potential synergies from Alstom, GE stock is a sure bet to reach $35 in the next 12 to 18 months assuming GE can grow its revenue at a long-term rate of 4% to 5%. And if Immelt can return GE to the low teens in free cash flow margins, $40 per share during that span is not out of the question, either.

With Alstom's assets entering GE's possession, the next 10 years of GE's growth are likely secured because aside from helping GE achieve its goal of returning to its industrial roots, Alstom's businesses will help GE gain exposure in untapped European markets.

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My reference to Alstom's "assets" is not by accident. Recall, GE entered the deal wanting only the power business. But the opposition by the French government forced GE to agree to some concessions, including allowing the French government to retain a 20% stake in Alstom. Immelt also agreed to allow Alstom to keep a 50% interest in three energy joint ventures.

The way I see it, these were small prices to pay for having landed the prize of the whole deal.

When it was all said and done, GE has acquired all of Alstom's global gas and steam turbine equipment and services business. Combined, these businesses -- which have a large customer base in Europe -- generate more than $10 billion in annual revenue.

Immelt has been clear about his vision of GE as a global industrial power. In the most recent quarter GE posted 14% revenue growth in both aviation and power/water segments, its two largest industrial businesses. This is while GE's oil and gas division posted revenue gains of 27%. But it's about the future.

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