Every Thursday we bring you one of our best U.S. stock picks. You will read about stocks making moves you should know about, most often from our newsletter on U.S. investing, Wall Street Stock Forecaster.
GE is selling less important assets to concentrate on its main industrial-equipment business. That should improve the company’s earnings and cut its risk.
GENERAL ELECTRIC CO. (New York symbol GE; www.ge.com) makes machinery for power generation and distribution (such as turbines) and other products, like jet engines, medical equipment, appliances, lighting and locomotives.
The company continues to shrink GE Capital, which mainly provides loans to GE’s clients. In 2014, this business supplied 42% of the company’s operating earnings, but it aims to cut that to 25% by 2016.
As part of this plan, GE recently agreed to sell GE Capital’s consumer-lending operations in Australia and New Zealand for $6.3 billion. The proceeds will help cover the cost of the company’s recent alliance with France’s Alstom SA, a leading maker of parts for power plants and transmission gear.
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Blue chips stocks: GE raises dividend for yield of 3.7%
Under the deal with Alstrom, GE will form three 50/50 joint ventures with Alstom. One will combine their electrical grid operations, while a second will focus on products for renewable energy projects, like offshore wind farms. The third will hold Alstom’s nuclear power equipment division.
In all, GE will pay $13 billion. European regulators still have to approve the deal, but GE expects to complete it later in 2015.
Big acquisitions like this add risk, but GE expects combining plants and other functions to save it $1.2 billion annually by the end of the fifth year.
Meanwhile, GE earned $16.7 billion in 2014, down 0.9% from $16.9 billion in 2013. Gains from its industrial operations— mainly due to acquisitions of oil and gas equipment makers— offset lower earnings at GE Capital. Per-share profits rose 0.6%, to $1.65 from $1.64, on fewer shares outstanding. Revenue gained 1.7%, to $148.6 billion from $146.0 billion.
The company will likely earn $1.73 a share in 2015, and the stock trades at a reasonable 14.5 times that forecast. GE also recently raised its quarterly dividend by 4.5%, to $0.23 a share from $0.22. The new annual rate of $0.92 yields 3.7%.
Recommendation in Wall Street Stock Forecaster: BUY.
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