General Electric Earnings: What to Expect

Story updated with additonal information.

NEW YORK ( TheStreet) -- GE shares closed at $18.33 Wednesday, down 2% over the previous week, despite the company's announcement of a slew of deals with Chinese partners in the energy, aviation and rail sectors that are "expected to generate more than $1 billion in exports from the U.S. and create or support jobs in both countries, including more than 4,500 U.S. jobs," according to the company.

The shares returned 14% over the previous year, although investors had a bit of a wild ride during the first half of 2010.

After peaking at a closing high of $19.50 to celebrate the tax deadline on April 15, the shares slid to a closing low of $13.88 on July 2, then pretty much climbed back for the rest of the year. After raising its quarterly dividend payout by two cents to 12 cents a share in July, the company repeated the action in December and based on the 14-cent quarterly payout, the shares now have a dividend yield of 3.00%.

GE had a war chest of $78 billion in cash and equivalents at the end of the third quarter and put some of the money to work in October, when it as agreed to acquire energy infrastructure firm Dresser for $3 billion. GE Capital also purchased a retail credit card portfolio from Citigroup ( C) for undisclosed terms. In December, the company made another energy infrastructure acquisition, agreeing to purchase deep-sea pipeline manufacturer Wellstream for $1.3 billion.

CEO Jeff Immelt said on December 14 that GE would redeem the $3 billion in preferred shares held by Warren Buffett's Berkshire Hathaway in October 2011. The shares -- which Berkshire purchased in October 2008 -- have a hefty 10% coupon and while retiring the shares will cost GE a premium of $300 million, it will also save the company $75 million per quarter in interest payments.

In December GE also said it expected the second phase of the Hudson River dredging project in New York would result in an after-tax charge of $500 million during the fourth quarter, which the company expected would be offset by "positive items, including a favorable tax settlement."

Earnings:

The average estimate among analysts polled by Thomson Reuters is for GE to report fourth-quarter net income of 32 cents a share, following third-quarter earnings from continued operations of $3.3 billion, or 29 cents a share, which beat the third-quarter estimate of 27 cents a share.

Morgan Stanley Research analyst Scott Davis has an "overweight" or buy rating on GE's shares with a $22 price target and estimates the company will report fourth-quarter earnings of 30 cents. His "base forecast" for the company is "a sharp recovery" of earnings from $3.1 billion, or $1.10 a share, for 2010 to $5.2 billion, or $1.25 a share, in 2011.

In a report published Thursday, Davis pointed out that the fourth quarter is "seasonally important" for GE, with about "30% of GE Industrial sales and op profits typically generated and order activity strong at year end." His firm expects "trends in prior quarters to continue: i.e. improving trends in GECS and Healthcare, offsetting still sluggish later-cycle businesses, particularly powergen where wind is still dead."

Jason Feldman of UBS Investment Research upgraded his rating for GE to a buy on January 10, citing "improved visibility" and "the potential for substantial improvements in GE's core industrial businesses as they recover from highly depressed levels." He also believes that "downside is limited by GE's current valuation and high dividend yield."

Feldman's price target for GE is $23 price target, and agrees with Davis that the company will report EPS of 30 cents for the fourth quarter. Feldman added that is "trading at nearly the lowest multiple in the sector" at 14.1 times consensus EPS for 2011, despite the fact that the company's earnings are at "substantially more depressed relative to 'normal' than for other industrials."

Revenue:

The average projection among analysts is for fourth-quarter revenue of $39.9 billion, which would be a sharp improvement from a disappointing $35.9 billion in the third quarter, which missed that quarter's consensus estimate of $37.7 billion, with the largest decline coming in GE's energy infrastructure division, although that division's profit was flat year-over-year at $1.66 billion.

For the fourth quarter of 2009, GE's top-line revenue was $41.4 billion.

Davis expects $39.5 billion in fourth-quarter revenue, with $10.4 billion coming from the energy infrastructure division, down 8% year-over-year. For the technology infrastructure division, he expects revenue of $10.7 billion, increasing 7% from the fourth quarter of 2009. For GE Capital, Davis expects the continue shrinkage of the balance sheet to lower fourth quarter revenue to $11.3 billion from $12.5 billion a year earlier.

GE Capital:

GE Capital's segment profit in the third quarter was last quarter was $871 million, a 19% increase from a year earlier, as improvement in credit quality enabled the company to lower its provision for losses on financing receivables to $1.7 billion from $2.9 billion. For the fourth quarter, Davis estimates GE Capital's profit will be $912 million, compared to $336 million in the fourth quarter of 2009.

According to GE Capital Credit Card Master Note Trust filings for the month ended November 21, the 30+ day delinquency rate for securitized credit card balances was 5.04%, improving from 5.12% the previous month. GE's November 21 delinquency rate exceeded the 4.15% average for November reported by SNL Financial for the commercial banks with major U.S. credit card operations, including Citigroup (which actually reports delinquencies of 35 or more days), JPMorgan ( JPM), Bank of America ( BAC), Capital One ( COF), American Express ( AXP) and Discover ( DFS).

GE Capital's annualized charge-off (loss) rate for the securitized card portfolio was 8.95% for November, exceeding the 7.46% average loss rate for the major credit card lending banks, according to SNL Financial. Bank of America had the highest loss rate among the group at 9.92% and American Express the lowest, at 4.58%. Citigroup's loss rate for November was 9.40%, followed by JPMorgan at 7.16%, Capital One at 7.00% and Discover at 6.72%.

Upcoming Events:

GE expects its pending sale of 51% of NBC Universal to Comcast was to close early in 2011, yielding $6.4 billion in cash. The deal is still subject to regulatory approval.

Also, the company expects to resume dredging in the Hudson River in the late Spring 2011.

The Chinese deals are, of course, a long term play which could lead to additional deals and revenue for the company. Immelt was among the dignitaries present at President Obama's White House fete on Wednesday for Chinese President Hu Jintao, and said in a Reuters interview that ""We believe in totality of free trade. We think if GE is good enough to compete in China, we should win." .

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

To contact the writer, click here: Philip van Doorn.

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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 TheStreet.com 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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