Since becoming CEO in 2001 Immelt has focused the company on the world's biggest problems, especially energy and health care costs. Over the last 10 years GE shares are down over 20% while the S&P 500 has gained over 78%. So far this year GE is down 6% and the S&P is up 7%. Its shares recently traded around $26.
The comparisons are better over different time frames. In the last five years GE shares are up 126% while the S&P 500 is up "only" 114%. At current prices GE sports a yield of 3.35%. Immelt's focus on the long run hasn't always paid off for shareholders in the short run.
That long-term focus may finally be paying off, however, thanks to high energy prices fueled by the Ukraine crisis, and pressure by insurers on hospitals and doctors to automate and push costs down under Obamacare.
GE shares rose in today's pre-market trading after it reported quarterly revenue of $36.23 billion and net income of 39 cents per share, the last of which was in line with estimates.
GE, which has a market cap just shy of $264 billion, also expects to bring in $3.1 billion with the spin-off of its credit card unit, now called Synchrony, later this month. The GE focus on heavy industry will increase with the expected sale of its appliances unit. TheStreet considers GE shares a buy.
The GE release on its earnings emphasized that its industrial revenue rose 7% during the quarter, and profits rose 9% to $4.2 billion as margins expanded by 20 basis points year-over-year. Its order backlog at the end of the quarter was $246 billion, up almost 10%. Revenue for all of 2013 was $146 billion. In its release GE focused on new orders for locomotives, gas turbines and oil drilling systems, as well as jet engines.
Industrial orders have long lead times and enormous capital requirements, yet remain susceptible to the business cycle. It's not very sexy, despite efforts in recent GE ads to make it so. Immelt keeps coming up with "feel good" jobs for the company, like cleaning up Alberta's tar sands but fewer than 10% of revenue falls to the net income line, and the stock is still priced one-third below what it fetched when Immelt took over from the legendary Jack Welch
GE is run a little like the Catholic church in that each succeeding CEO is given the power to transform the company. Immelt is only the ninth chairman the company has had since its debut on the original Dow Jones list in 1887. GE was a financial behemoth under Welch, an appliances giant under Welch's predecessor, Reginald Jones, and a huge defense contractor under another legendary predecessor, "Electric" Charlie Wilson.
The leading candidates to succeed Immelt, Lorenzo Simonelli and Steve Bolze, both come out of a heavy industry background, Simonelli in oil and gas, Bolze in power and water. Of course, before becoming CEO himself Immelt was known as a marketer with experience in appliances, plastics and medical supplies. So if you are buying into GE's long-term future you are buying risk.
At the time of publication the author had a position in GE.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates GENERAL ELECTRIC CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate GENERAL ELECTRIC CO (GE) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- GE's revenue growth has slightly outpaced the industry average of 0.6%. Since the same quarter one year prior, revenues slightly increased by 2.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has slightly increased to $4,961.00 million or 7.61% when compared to the same quarter last year. In addition, GENERAL ELECTRIC CO has also modestly surpassed the industry average cash flow growth rate of 3.60%.
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- GENERAL ELECTRIC CO's earnings per share declined by 17.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GENERAL ELECTRIC CO increased its bottom line by earning $1.47 versus $1.38 in the prior year. This year, the market expects an improvement in earnings ($1.70 versus $1.47).
- The gross profit margin for GENERAL ELECTRIC CO is rather high; currently it is at 51.60%. Regardless of GE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.82% trails the industry average.
- You can view the full analysis from the report here: GE Ratings Report