General Electric Earnings: Analysts See Solid Quarter
General Electric is seen posting solid third quarter results this week, helped by improvements at its finance business.
"I think we're going to see a good number turned in on Friday," said Steve Winoker, an analysts at Sanford C. Bernstein & Co.
"I wouldn't be surprised to see (earnings) two or three cents above that and all of that stemming from capital," he said, referring to the firm's finance arm GE Capital.
Winoker, who rates the parent company of CNBC an "outperform," says GE Capital's bottom line will be helped by improvements in the credit cycle, declines in net charge-offs, and provisions for bad loans.
Analysts surveyed by ThomsonOne expect the Fairfield, Connecticut-based firm, to report earnings of 27 cents a share on $37.6 billion in revenue. In last year's third quarter GE earned 22 cents a share on revenue of $37.8 billion.
Along with the continued recovery in its finance arm, Morgan Stanley's Scott Davis writes in a note to clients that GE's medical business is expected to beat expectations, as it did in the second quarter, while GE's power business willl continue to show the effects of a slide in demand for wind turbines.
Commercial real estate will continue to be a drag on results, but Black sees this business close to bottoming.
GE, which makes products ranging from jet engines to handheld ultrasound machines, has been undergoing a substantial restructuring over the last eighteen months.
Having lost its triple A credit rating last year, the company is shrinking its once powerful finance arm while focusing on generating a majority of profits from its global infrastructure businesses, which include energy and aviation. As part of the restructuring, it's selling a majority stake in its NBC Universal media and entertainement business to Comcast, pending regulatory approval.
Once the NBC Universal deal is complete, GE will have an additional $8 billion in cash, or a total of about $25 billion. When the company reports its third-quarter results, investors will be listening for any guidance on how the company plans to deploy the cash.
In July, the firm extended a $15 billion stock buyback plan and raised its quarterly dividend to 12 cents from 10 cents a share. GE has said in the past that it wants to raise the dividend further, having slashed it from 31 cents a share in the aftermath of the financial crisis in order to conserve cash.
Analysts expect the dividend to be raised again in the first part of next year, if not sooner. They also anticipate that GE will use some of the cash to buy back investor Warren Buffet's $3 billion in preferred shares, and continue a recent spree of bolt-on acquisitions in energy, healthcare and, if the price is right, aviation.
GE recently paid $3 billion for privately-held Dresser Industries, a global energy infrastructure firm. Analysts say Dresser is the model for future acquistions by the company — one that is quickly accretive, easily absorbed, and fairly price.
Investors' positive reaction to the deal is evident in the 4 percent gain in GE's shares since the deal was announced last Monday.