General Electric (GE, Financial) finished the fiscal year with strong performance in the recently reported fourth quarter. With a vast portfolio of product the company succeeded in gaining good market share over the period with impressive increase in the EPS. GE is looking to deliver better results in upcoming quarters. Even this looks happening for the company as analysts are also expecting solid growth across the industry in next five years. With a vast portfolio and segments GE is focusing on each one of them to improve its operations and profitability. With future looking bright and good traction for its products in the market, General Electric seem well positioned for better performance.
Seeing strong growth
General Electric has tightened its belts to drive its growth ahead of its peers. It stands strong with a broad line up of products. Its products are gaining good traction in the market in different segments. In addition, General Electric has a solid backlog of $261 billion which further strengthens GE’s opportunities in future. Simplification and services are among its key growth drivers and the company is seeing a positive impact of analytics on the service productivity which led the service margins to grow by 270 basis points in the past. To be profitable in 2015, General Electric is laser focusing on gross margins and product costs.
At the same time, General Electric is also looking to gain more market share and be impressive on the exchange as well. It can attract the investors on the back of an impressive dividend. In fact under a repurchase strategy GE has already returned about $11 billion to investors. General Electric is pleased to be on track to deliver $12 billion to $15 billion of free cash flow and dispositions in 2015. To lubricate this initiative, the company is allocating its capital in this regard for organic and dividend growth.
Smart moves
Shifting the focus to individual segments, General Electric is seeing robust opportunities from US healthcare market. Imaging and Ultrasound are the key areas in this field which seems to be booming for GE. The company is seeing positive trend in the demand growth in these segments from 2014. With an impressive 17% rise in the equipment order placement, General Electric expects this trend to continue in 2015 as well. Similarly in the Aviation segment, General Electric is encouraged by a solid 25% growth in the spare orders in 2014. This trend is expected to continue in 2015 as well and the company is expecting high single digit growth in this segment in 2015.
These growth opportunities are further expected to be supported by strengthening U.S dollar. This will surely improve its margins giving solid business opportunities. However, it can be affected by the foreign exchange rates internationally but the company thinks it to be a manageable aspect. In addition, to further improve its margins, General Electric will be focusing on reducing corporate costs. However, the company can face challenging situation in this on the back of higher pension expenses.
GE has announced an agreement to acquire Alstom which seems to be wise financial and strategic move by the company. This has many benefits as it will create and alliance for the energy transition between the two companies. Also it can be a great deal for GE’s investors as this initiative will surely help it to gain market share in future. in addition, it is expected to impact the GE positively in terms to earnings growth while transitioning its product portfolio towards industrial businesses by also broadening its product and service offering for its customers.
Conclusion
With a trailing P/E of 17.25 the stock looks reasonable and the forward P/E of 14.21 indicates good growth in earnings in near term as well. An impressive profit margin of 10.25% is also expected to attract more investors to the stock helping it to be impressive on the stock exchange. All these facts depicts a healthy image of the stock as of now. I would like to suggest the investors to definitely pick General Electric.
