More Deals Looming?
This may not be the last deal GE pursues. At GE's December analyst meeting, CEO Jeffrey Immelt said the company would focus on bolt-on acquisitions in the $1 billion to $3 billion range.
According to a research note from Citi analyst Deane Dray, "GE should have roughly $41 billion to $44 billion of firepower for investor-friendly capital allocation in 2013 from operating cash flow, dividends from GE Capital, and the $13.5 billion in after-tax proceeds from the NBCU deal." He was referring to the $16.7 billion deal in which GE sold its 49 percent stake in NBC Universal to Comcast. (NBCU is the parent company of CNBC and CNBC.com)
With GE expecting to use $10 billion for buybacks in 2013 and $8 billion for the dividend, that "still leaves plenty of room for opportunistic $1 billion to $3 billion bolt-on deals such as Lufkin," the Citi analyst wrote.
Oppenheimer analyst Christopher Glynn told CNBC the Lufkin deal was a sea change in GE's capital allocation strategy over the long-term as the company is now focused on targeted acquisitions on the industrial side instead of the riskier financial side of the business. "They're pulling the portfolio gradually away from the financial and retrenching that very methodically," Glynn said.
Winoker expects more deals in energy and aviation as well as in health care as GE continues to pivot away from GE Capital to its industrial businesses. Holland continues to expect GE to fill any key technological holes in their oil and gas product offering.
The Morningstar and Citi analysts are more bullish on GE than Bernstein's Winoker. Citi, which rates the stock a "buy," notes that at 13.1 times 2013 earnings GE trades at a 14 percent discount to peers. Their $28 price target assumes the shares trade in line with peers and implies 26 percent upside including the 3.4 percent dividend yield.
Holland has a price target of $27 on the stock, saying "Long-term, this company is levered to some very good fundamental growth drivers," pointing to aviation, gas power generation and medical equipment.
Holland said the stock is not "jumping up and down cheap," but it remains undervalued.