Immelt has long stated that GE's goal is to grow its industrial earnings and shrink GE Capital sufficiently to have the conglomerate deriving 70% of earnings from its industrial business. GE Capital had $524.0 billion in total assets as of March 31, declining from $573.4 billion a year earlier, in keeping with the company's plan to reduce the size and risk of its finance business. Excluding non-interest bearing liabilities, cash and equivalents, the finance unit's "ending net investment" was $402 billion as of March 31, declining from $436 billion a year earlier, and well below Immelt's earlier initial target of $425 billion. When speaking about GE Capital's success in shrinking its balance sheet, GE CFO Keith Sherin said during the company's earnings conference call on April 19 that there were "not a lot of huge transactions there," but that the finance unit was continuing to see a runoff of noncore assets. Increasing real estate values were also enabling GE Capital to mark additional assets to sell by the end of 2013. But Immelt now wishes to shrink GE Capital's ENI to a range of $300 billion to $350 billion by the end of 2014. "That is going to create excess cash in GE Capital, and we are going to use that excess cash to buy back stock. We would like to get our share count down to 9 billion to 9.5 billion shares by the end of '15." Immelt expects share buybacks to total $10 billion this year.
GE Capital is GE's cash cow. The finance unit announced last week a plan to pay $6.5 billion in dividends to the parent company during 2013, increasing from $6.4 billion in 2012.
Bank of America Merrill Lynch analyst Erika Penala in a note to clients early this month suggested that Citigroup ( C) was " the most logical bidder" for GE Capital's $31 billion private label card portfolio. In a report on Thursday, Bank of America Merrill Lynch analyst Andrew Obin wrote that "the IPO discussion does not necessarily preclude the company from exploring divestiture options, which we think are still on the table for the right price. "We calculate that the buyback would not fully offset high-return PLCC divestiture dilution in the first year, though we think portfolio reshaping would be well-received by investors, as management eliminates risk from higher-leverage non-core finance holdings," Obin wrote.
Continuing on his generally positive theme, Obin wrote that "GE's ability to extract more incremental cash from GECC ahead of the SIFI designation is indicative of a constructive relationship with the regulators."
Based on a quarterly payout of 19 cents, the shares have a dividend yield of 3.20%. 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. Follow @PhilipvanDoorn