GENERAL ELECTRIC CO. (New York symbol GE; www.ge.com) continues to shrink its GE Capital subsidiary, which provides loans and other financial services to buyers of its industrial products, such as power-transmission gear, jet engines and locomotives.
GE Capital supplies around 30% of GE’s overall revenue and earnings. As part of a plan to focus on its main industrial businesses, the company aims to cut GE Capital’s assets to half of what they were prior to the 2008 financial crisis. It aims to complete these reductions by 2014.
As part of this plan, GE Capital is selling 471 commercial properties in the U.S. for $807 million. Most of these locations house fast-food restaurants. Separately, GE Capital has agreed to sell a portfolio of vehicle loans in Canada for $552 million.
The total value of these sales—$1.4 billion—is equal to 42% of the $3.3 billion that GE earned in the most recent quarter of 2013.
Blue chip stocks: GE adds to oil and gas business with acquisition of equipment maker Lufkin
Due to GE Capital’s smaller size, the company’s overall revenue in the three months ended September 30, 2013 fell 1.5%, to $35.7 billion from $36.3 billion a year earlier. Earnings fell 5.1%, to $3.3 billion from $3.5 billion a year earlier. Earnings per share fell 3.0%, to $0.32 from $0.33, on fewer shares outstanding. If you exclude unusual items, earnings per share rose 11.1%, to $0.40 from $0.36.
In the meantime, GE continues to expand its oil and natural gas business, which makes a wide variety of industrial equipment, such as pumps, valves, compressors and turbines.
Earlier this year, GE finalized its acquisition of Texas-based Lufkin Industries Inc. (Nasdaq symbol LUFK). This company’s products help producers bring more oil and gas to the surface in wells with low internal pressure. Demand for this equipment is strong, as it helps producers increase their output and lower their costs. The company paid $3.3 billion for Lufkin.
General Electric’s stock has gained 22% since the start of 2013. The company’s $0.76 dividend currently yields 2.9%.
In the latest edition of Wall Street Stock Forecaster, we look at whether General Electric’s cutbacks in GE Capital will improve its earnings outlook and allow the shares to keep rising. We conclude with our clear buy-hold-sell advice on the stock.
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