General Electric ( GE) has some promises to keep.

The giant conglomerate told investors last month that it would likely hit the high end of its earnings guidance for the first two quarters of this year. It is, therefore, expected to report first-quarter profits of 32 cents a share -- a penny better than the consensus estimate -- when it releases its latest financial results early Thursday. It also plans to beat the current second-quarter consensus estimate of 38 cents by a penny.

Wall Street expects GE to keep its recent promises and possibly deliver even more upside surprises as the year wears on. Even so, analysts are focused more on the big picture than on quarterly snapshots of the company's financials.

After all, GE is in the process of transforming itself into a company that can, once again, regularly deliver double-digit earnings growth. And it will be looking to showcase its progress toward that goal throughout this critical year.

"The GE story is one of accelerating growth as we approach year-end and beyond, with a better mix of businesses, and not one of quarter-over-quarter EPS in 2004," Bernstein analyst Kerry Stirton wrote on Tuesday. "We have little doubt that GE merits a modest premium valuation now and, in all likelihood, a more substantial premium over the next few years."

Stirton, like most of his Wall Street peers, recommends buying GE shares. The company's stock slid 8 cents, to $31.50, ahead of Thursday's earnings release.

Rebuilding GE

GE updated its guidance when unveiling bigger news last month.

Three weeks ago, the company announced another major acquisition. It laid out plans to purchase InVision Technologies ( INVN) for $900 million in an effort to aggressively expand its high-margin security business. By then, the company had already launched two other -- substantially larger -- acquisitions that were meant to drive earnings growth.


Bouncy
GE over a year


GE will close Thursday on its $10.4 billion acquisition of Amersham, a medical imaging powerhouse that is expected to bring another $3 billion in annual revenue to GE's health care unit. And the company is merging its NBC division with VivendiUniversal in another multibillion-dollar deal that's slated to close in May.

Meanwhile, GE plans to shed Genworth -- its life and mortgage insurance business -- in a public offering set for the first half of this year. In the end, GE plans to emerge as a company that can post sustainable double-digit earnings growth beginning in 2005.

Goldman Sachs analyst Deane Dray is optimistic.

"The key point here is that the strategy/decision-making process underpinning GE's portfolio transformation is largely behind it now, and the primary task at hand is execution and integration," wrote Dray, who raised GE to outperform this week. "And of all the multi-industry companies, GE has the well-earned reputation for disciplined execution."

Dray looks for "growth engines" and "cash generators" -- GE's two new business categories -- to hit overall targets next year.

Growth Engines

GE recently began to report on individual business lines that are defined by either their growth potential or their steady cash flow.

Many eyes are fixed on the first category. There are seven divisions -- including health care, NBC Universal, energy and transportation -- that present solid growth opportunities.

Through its acquisition of Amersham, Prudential analyst Nicholas Heymann recently noted, GE has nearly tripled its share of the market for medical imaging and related services. Moreover, he added, the company has found a way to capitalize on a shifting focus within the industry.

"The pending acquisition of Amersham should give GE a leading position in the emerging market for predictive personalized medicine that is expected to rapidly emerge as a critical means of improving global health care standards and productivity over the next three to five years," wrote Heymann, who has an overweight rating on GE's shares.

Heymann is excited about GE's other growth divisions as well. He singles out NBC as the nation's "most profitable network by a very large margin." And he says the network's merger with Universal should only strengthen the business and diversify its revenue streams.

Meanwhile, Heymann says that GE's energy unit is fielding a surge of foreign orders as it waits for domestic power markets to rebound. And he points to a solid performance by GE's aircraft business as well.

Heymann recommends buying GE's stock before things get even better.

"It's increasingly clear to us why this name is now beginning to not only show up in more portfolios, but increasingly could become an overweight in most as the year progresses," he wrote last week. "With the strongest order trends ... since late 2000, investors recently have also become convinced that not owning GE shares could prove unfortunate if the company were to report a positive earnings surprise, now that orders are likely beginning to strengthen throughout almost all of GE's businesses."

Speed Bumps

Lehman Brothers analyst Robert Cornell is more cautious.

"We agree that 'transformed' GE has a bright future," wrote Cornell, who has an equal-weight rating on the stock. "But in our minds, it is still early to look across the valley."

The market has been cool to the company as well. In recent weeks, investors pushed the stock down as GE issued a huge slug of new shares to finance its big acquisitions. Global issues -- such as high energy prices and terrorist threats -- could be weighing on the stock as well, one analyst said.

"GE's share price has been weak as negatives have more than offset significant positives," UBS analyst David Bleustein explained.

Bleustein pointed out that recent offerings have flooded the market with $13 billion worth of new GE stock. He also said that higher energy prices could be hurting GE's aircraft and materials businesses. In addition, he said that heightened terrorist activity could slow the company's transportation business as well.

Still, Bleustein himself likes the stock.

"We believe the current valuation provides an attractive opportunity," he wrote last week.

Even the more restrained Cornell points to possible upside surprises.

"Bottom line, GE says that the current U.S. business recovery is broad-based, and this is what underscores the company's stronger earnings outlook," he recently noted. "It is not out of the question, in our minds, that GE could beat these upwardly revised numbers."

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