Tag Archives: GE
United Technologies Corporation (UTX) is a diversified conglomerate, providing high technology products and services to the building systems and aerospace industries worldwide. Despite the mixed earnings results, UTX continues to hold strong cash position while focusing on integration to boost profitability.
For Q1, 2013, revenue increased to $14.4B, which is below analysts’ estimate of $14.9B. However, net income of $1.39 per share is well above the estimate of $1.29 per share. The management also reaffirmed a forecast for full-year profit of $5.86-$6.15 per share on $64B-$65B of sales.
Declining Organic Sales due to Tough Market Conditions
The acquisition of Goodrich and IAE had provided $0.21 of earnings for Q1; however, organic sales declined 2%. However, North America and emerging markets continue to recover while Europe continues to be a headwind. On the positive side, UTX’s portfolio is well positioned for a resumption of top-line growth as the year progresses on.
Integration, Growth, and CapEx
Climate, Controls and Securities continued to realize savings from the integration (profit increased 8% while organic sales declined 3%). Otis, on the other hand, is gaining momentum with two consecutive quarters of sales growth. The CapEx for the quarter was $295M, which was up 60% comparing to the same quarter last year, as the company prepares for the ramp in commercial aerospace.
General Electric Company (GE), with a market cap of $226.16B, is a diversified technology and financial services company and a leader in all markets in which it competes. On April 19, 2013, GE reported in-line operating profit of $3.6B or 35 cents per share. However, GE’s share price dropped more than 4% due to declining revenue from the industrial end.
The Good and Bad for Q1, 2013
For Q1, GE reported the continuing operations revenues of $35B. Industrial sales were down 6% to $22.3B. Power and water dragged the overall results, whereas Europe services remained tough. The industrial segment profits were about $200M below the management’s expectations due to the worsening condition in Europe and some short cycle push outs from March into Q2. The gap was offset by cost control and better than expected GE Capital performance. Further, shipments should improve significantly in the second half.
GE Capital continued to improve and delivered a solid quarter. The ending ENI balance was reduced by $17B, and the earnings had increased to $1.93B as compared to $1.8B in Q4, 2012. The GECC Tier 1 common ratio had increased to 11.1%, as seen from the table below.
While the S&P 500 had gained 11.44% year to date, leading conglomerates stocks had been outperforming the market, including General Electric Company (GE) with 13.10% increase, United Technologies Corporation (UTX) with 15.96% advance, and Textron Inc. (TXT) with 20.10% surge as seen from the chart below.
Source: Google Finance
General Electric Company
General Electric Company (GE), with a market cap of $240.41B, is a diversified technology and financial services company and a leader in all markets in which it competes.
GE’s latest M&A move was to acquire Lufkin Industries Inc. (LUFK), which is a move to take advantage of an oil-drilling boom, as reported by Bloomberg. It is a move for GE to buy the synergies and growth, as said by an analyst at William Blair & Co. GE continues to expand into the industrial end and shrink GE Capital, where the last reported ENI balance had been reduced to $419B in Q4, 2012 as compared to $461B in Q1, 2011. GE also took a notable step to divest its 49 percent stake in NBC Universal on February 12, thus to better focus on the industrial market as well as return more capital to shareholders while retaining more cash for future M&A.
Analysts currently have a mean target price of $25.60 for GE, suggesting 10.73% upside potential. Analysts, on average, are estimating an EPS of $0.35 with revenue of $34.70B for the current quarter ending in March, 2013. GE is expected to report its Q1, 2013 earnings on April 19, 2013. In the last four quarters, GE had three positive surprises and one in-line result.
General Electric Company (GE), with a market cap of $239.26B, is a diversified technology and financial services company and a leader in all markets in which it competes. While all industrial segments had positive earnings growth with expanding margins in the last quarter, the progress of GE Capital (which comprises around 28.6% of GE’s value currently) had significantly improved GE’s bottom line in the past 2 years.
Improving GE Capital, Declining ENI Balance and Improving Earnings
The management continues to shrink GE Capital while improving its quality. GE uses ENI, Ending Net Investment, to measure the size of GE Capital segment. Investors should monitor ENI Balance to quantify how GE is performing against its previously communicated goal to reduce the size of financial services segment.
Below is the detail for GE Capital’s ENI as of Q4, 2012:
In the past 2 years, ENI had declined from $461B to $419B and achieved progress every quarter. The GECC Tier 1 common ratio had also improved from 9.9% in Q1, 2011 to 10.2% in Q4, 2012. Most importantly, the earnings had improved from $6.6B in 2011 to $7.4B in 2012, with the breakdown seen in the table below.
General Electric Company (GE) is a diversified technology and financial services company and a leader in all markets in which it competes. GE was down 0.63% and closed at $23.62 on March 11, 2013. GE had been outperforming the market with 15.56% gain YTD (vs. 11.66% increase for Dow Jones).
On March 11, 2013, Nomura Securities downgraded GE from buy to neutral with a price target of $24.00 saying the positives are already reflected in the stock. Analyst Shannon O’Callaghan commented,
GE has made key positive steps in the last few years and sentiment has turned more positive. We applaud these positives, but we think they are now reflected in the valuation adjusting for accounting differences. The P/E (adjusted for accounting differences) is now in line with premier industrial peers despite GE still getting 40-45% of its earnings from GE Capital. On a comparable GAAP pension basis, we estimate GE’s 2013 P/E is 15.7x, which is a slight premium to peers EMR, UTX, and MMM. Given the 40-45% of GE’s earnings still coming from GE Capital, this implies GE’s industrial earnings are already being awarded a premium P/E. GE has made a lot of progress in the last few years, and we think portfolio moves such as these could be important next steps. At this stage we think a lot of the good news is priced into the stock, and we see more potential for outperformance elsewhere in our sector.
Analysts currently have a mean target price of $25.07 and a median target price of $25.00 for GE. Analysts, on average, are estimating an EPS of $0.35 with revenue of $34.84B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $1.68 with revenue of $149.59B, which is 1.50% higher than 2012.
Accessibility to potable water had been improved compared to 30 years ago; however, long term trends for water scarcity are not too optimistic. According to Food and Agriculture Organization (FAO), “Water use has been growing at more than the rate twice of population increase in the last century. By 2025, 1.8 Billion people will be living in countries or regions with absolute water scarcity, and two-thirds of the world population could be under stress conditions.” Population growth and economic development are putting unprecedented pressure on renewable, but finite water resources.
Understand Water Scarcity
The term, “water scarcity”, needs to be understood as a relative concept, which is fundamentally dynamic. Water scarcity is defined in relation to needs and livelihoods where climate, geography and, increasingly, technological interventions determine the distribution of water around the world.