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Investors have bid up General Electric shares to almost triple their March lows but the largest U.S. conglomerate will have to deliver solid quarterly results for them to rise much further. GE reports its earnings in Friday.
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Wall Street will be watching closely to see how well GE's big industrial businesses — it is the world's largest maker of jet engines and electricity-producing turbines — are doing to offset the troubles of its GE Capital finance business, which has been hard hit by the credit crunch and recession.
Chief Executive Jeff Immelt and other GE officials have said that while capital markets have improved significantly from the freeze of a year ago, they expect economic activity to be sluggish for the next year to 18 months, particularly so in their U.S. home market.
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But better-than-expected results from fellow U.S. blue chip Alcoa [AA
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] and Dutch conglomerate Philips Electronics over the past week have raised investor hopes for GE.
"There's a lot of market enthusiasm in the stock, and now it has to be validated with at least something that isn't horrible," said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio, which holds GE shares.
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GE shares [GE
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] are trading around $16, almost three times their 18-year low of $5.87 set in early March. Year to date, they are about flat, lagging the 13 percent rise of the Dow Jones industrial average.
Wall Street expects GE's profit to fall by more than half to 20 cents per share, according to Thomson Reuters I/B/E/S, with revenue forecast to drop about 15 percent to $40 billion.
The performance of GE's industrial businesses could also provide investors with a sense of how next week's reports from fellow large-cap industrials United Technologies [UTX
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], Caterpillar [CAT
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] and 3M [MMM
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] might look.
Beyond eyeing the Fairfield, Connecticut-based company's top- and bottom-line performance, investors will have a wary eye out for any signs of new weakness at GE Capital, which has invested heavily in commercial real estate.
"If you look at the assets held by this finance business, there's really no good news," said Charles Ortel, managing director at Newport Value Partners, a New York research firm that has a $2 price target on GE and does not hold a long or short position in the stock. "Could we see some surprises on the finance side? Absolutely."
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