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The Outlook on GE


Should one be bullish or bearish when it comes to GE?

MINYANVILLE ORIGINAL Let's face it: GE's (NYSE:GE) third-quarter report was too bright, which left everyone dancing around the maypole.

Where is there to go when you're already at the top? And GE didn't help by coming out and saying it doesn't expect things to improve much. The reason: A lousy economic environment. GE, of course, is the biggest multinational in the US. Its sales went up a measly 2.8%, while revenue dropped, especially in the areas of health care and aviation. Lost in the euphoria were the tidbits that foreign sales sagged because currency rates ate into the profits. After reality set in after the earnings release was completely digested, the stock dropped 3%.

Let's look at the numbers. The good news, of course, was that third-quarter net income went up to a pleasing $3.49 billion, which translates to $.33 per share. The same time a year ago, those numbers were $3.22 billion and $.22 per share. If one leaves out factors such as one-time costs and write-offs, $.36 per share is the adjusted number. This number is inline with the forecasts.

Revenue went up, too, but not enough to keep Wall Street happy, falling short by around $600 million. GE pointed the finger at exchange rate fluctuations, saying the fickle numbers reduced the company's revenue by a billion dollars. The company blamed the fluctuations on a weak US dollar, but indicated that it expected that problem to be mitigated after the forthcoming November elections.

LED lighting, [light emitting diode technology, invented by GE] along with GE's energy division, generated the company's largest growth. Because of the expected boom for LED lighting, GE has high hopes for continued growth in this area. Like most companies, GE said Europe remained a bleak spot. Most major companies do not expect things to improve in Europe until the current debt crises recede into history. As a result, GE does not expect the global economy to be much better next year.

GE's CEO Jeff Immelt has directed the company to begin buying back stock, hoping to lower its share count to less than 10 billion, which would equate with standards of about five years ago. So far, GE has repurchased $3 billion worth of shares. Like most major businesses, GE management is concerned that spending cuts and potential tax increases coming after the US presidential election could present obstacles.Immelt is keeping his fingers crossed. In fact, he does not expect those cuts to be implemented. He is assuming that somehow, some way, at the last minute, the conflict will be resolved.

The question now is whether to be bullish on GE or bearish. The best bet is to be a closet bull: Buy the stock, but don't out yourself. LED lighting may just save the company's bacon by boosting profits over the short term given the force obsolescence of incandescent lighting. And by then, things will have turned around.

Twitter: @RandallRadic
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