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Analyst Explains GE Upgrade to ‘Outperform’

Tuesday, 6 Dec 2011 | 7:03 PM ET

General Electric stock rose 2.39 percent after Tuesday’s upgrade to “outperform” — and remains a compelling investment, Sanford Bernstein analyst Steven Winoker said on “Fast Money.”

“I think you’ve got to look at the amount of cash that the company is generating, and the board’s general policy is to drive 45 percent target payout ratio,” he said. “This company is really churning.”

GE Gets an Upgrade
Discussing General Electric's upgrade, with Steve Winoker, Sanford Bernstein, and the Fast Money traders.

Shares of the largest U.S. conglomerate closed at $16.72, near the middle of its 52-week range.

Winoker, who forecast a 10 percent dividend increase, estimated that GE was looking at $12 billion in revenue from its industrial business. When GE Capital’s performance is factored in, the stock looks strong.

“There’s a lot of pressure to send that dividend up to the parent, so I would also expect that to start next year,” he said. “Their ratios look better, their margins are strong and growing, and they’re in a very good position.”

Winoker said that for every $1.57 per share in estimated earnings GE is looking at for 2012, GE Capital accounts for about 65 cents.

“I think you should be looking it as an industrial company that happens to have a very, very large financial arm attached to it,” he said.

While important to note that GE is generating $100 billion out of its industrial business, Winoker said there was more to the story.

“You can’t ignore that it’s sitting on top of a $600 billion balance sheet on the bank side that just happens to doing better and getting a number of tailwinds after aggressively managed it through what was a horrendous couple of years,” he said.

Looking at options, trader Mike Khouw said GE’s were a little tighter.

“There’s room, probably, in options prices between now and Jan. 13 for dividends in the neighborhood of 85 to 90 cents, possibly, which would suggest that there’s room for probably a 1½, 2-cent dividend increase probably somewhere about halfway through next year,” he said.

GE is a 49 percent owner of NBC Universal, which is the parent company of CNBC.

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Trader disclosure: On Dec. 6, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Grasso owns AKS; Grasso owns AMR; Grasso owns ASTM; Grasso owns AVAV; Grasso owns BA; Grasso owns BAC; Grasso owns D; Grasso owns LIT; Grasso owns MHY; Grasso owns PFE; Grasso owns PRST; Grasso owns S; Grasso owns XLU; Najarian is long AAPL; Najarian is long C; Najarian is long JPM calls; Najarian is long WFC calls; Najarian is long INTC; Najarian is long; HOO; Najarian is long GE; Najarian is long COP; Najarian is long MC calls; Terranova is long EMC; Terranova is long SU; Terranova is long NCR; Terranova is long UPC; Terranova is long TRLG; Terranova is long VRTS; Terranova is long LQD; Terranova is long MUB; Terranova is long AXP; Terranova is long IBM; Terranova is long HES; Terranova is long CAT; Terranova is long SWN; Terranova is long CNI; Terranova is long DECK; Terranova is long SBUX; Finerman owns SPY; Finerman has short calls AAPl; Finerman owns BAC; Finerman has short calls JPM; Finerman’s firm owns SPY; Finerman’s firm owns IWM; Finerman’s firm owns MDY; Finerman’s firm owns JPM; Finerman’s firm is long IBM and has short calls;

Steve Grasso
Stuart Frankel & Co. and its partners own CSCO

Stuart Frankel & Co. and its partners own CUBA

Stuart Frankel & Co. and its partners own GERN

Stuart Frankel & Co. and its partners own GM

Stuart Frankel & Co. and its partners own HPQ

Stuart Frankel & Co. and its partners own HSP

Stuart Frankel & Co. and its partners own HSPO

Stuart Frankel & Co. and its partners own JPM

Stuart Frankel & Co. and its partners own MET

Stuart Frankel & Co. and its partners own MSFT

Stuart Frankel & Co. and its partners own MU

Stuart Frankel & Co. and its partners own NYX

Stuart Frankel & Co. and its partners own PRST

Stuart Frankel & Co. and its partners own RDC

Stuart Frankel & Co. and its partners own UAL

Stuart Frankel & Co. and its partners own WFT

Stuart Frankel & Co. and its partners own XRX

Brian Kelly
Shelter Harbor Capital is long EURO

Shelter Harbor Capital is long IWM

Shelter Harbor Capital is long LNG

Shelter Harbor Capital is long PLPT

Shelter Harbor Capital is long CORN

Shelter Harbor Capital is long SOY

Shelter Harbor Capital is long AUSSIE $

Shelter Harbor Capital is long CANADIAN DOLLAR

Mike Khouw
Cantor Fitzgerald is a market maker in securities of AAPL

Cantor Fitzgerald is a market maker in securities of AKS

Cantor Fitzgerald is a market maker in securities of BAC

Cantor Fitzgerald is a market maker in securities of C

Cantor Fitzgerald is a market maker in securities of PNC

Cantor Fitzgerald is a market maker in securities of GS

Cantor Fitzgerald is a market maker in securities of JPM

Cantor Fitzgerald is a market maker in securities of WFC

Cantor Fitzgerald is a market maker in securities of GDX

Cantor Fitzgerald is a market maker in securities of MS

Cantor Fitzgerald is a market maker in securities of NFLX

Cantor Fitzgerald is a market maker in securities of GLD

Cantor Fitzgerald is a market maker in securities of XLU

Cantor Fitzgerald is a market maker in securities of TLT

Cantor Fitzgerald is a market maker in securities of XLF

Cantor Fitzgerald is a market maker in securities of SMH

Cantor Fitzgerald is a market maker in securities of INTC

Cantor Fitzgerald is a market maker in securities of CSCO

Cantor Fitzgerald is a market maker in securities of YHOO

Cantor Fitzgerald is a market maker in securities of IBM

Cantor Fitzgerald is a market maker in securities of CDR

Cantor Fitzgerald is a market maker in securities of AMZN

Cantor Fitzgerald is a market maker in securities of CMC

Cantor Fitzgerald is a market maker in securities of VZ

Cantor Fitzgerald is a market maker in securities of FIO

Cantor Fitzgerald is a market maker in securities of TOL

Cantor Fitzgerald is a market maker in securities of VMC

Cantor Fitzgerald is a market maker in securities of GE

Tim Freeman
Elevation LLC trades SPX options

Mike Walkley
No disclosures

Andy Hargreaves
Neither Andy, nor his family own shares of NFLX

Pacific Crest does not own > 1% shares of NFLX

Pacific Crest has no investment banking relationship with NFLX

Pacific Crest does make a market in the shares of NFLX

Steven Winoker
The following companies (GENERAL ELECTRIC GE) are or during the past twelve (12) months were clients of Bernstein, which provided non-investment banking securities related services and received compensation for such services GE / General Electric Co.

An affiliate of Bernstein received compensation for non-investment banking-securities related services from the following companies GE /General Electric Co.

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