Are GE’s Fortunes Improving?
On Friday analysts at Citigroup reiterated their buy rating on General Electric’s (NYSE:GE) stock and maintained its $24 dollar price target, less than three dollars above the stock’s closing price.
In the firm’s research note seen by Barron’s, Citi noted that the company’s fundamentals were improving. Analysts based that assessment on GE’s high-quality industrial earnings, which account for approximately 65 percent of the company’s normalized earnings, or those earnings that have been adjusted for nonrecurring or non-economic items to eliminate anomalies or facilitate comparisons.
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“GE’s [...] EPS is a 12% discount to large-cap peers, towards the low-end of its (15%) to 10% historical relative range vs peers,” read the report. “Our $24 price target assumes the shares trade inline with peers and implies 14% upside including a new 3.5% yield.”
The strengthening of GE’s financial arm, GE Capital, also holds some responsibility for the company’s improving fortunes. Citigroup said, “the GE Capital crisis has passed, losses appear to have peaked and the resized business should continue to post double-digit net income growth in 2012.” During the financial crisis, GE Capital, which then had assets equaling those of the sixth-largest U.S. bank, fell “just as hard” as other large U.S. banks, according to DailyFinance. Consequently, GE Capital’s heavy exposure to finance kept shares of its parent company depressed into 2011.
But on Friday, GE announced a dividend increase of 12 percent and its board increased a share-repurchase authorization by $10 billion, and both measures are expected to reverse some of the divestitures Chief Executive Jeff Immelt made during the crisis. At the time, the cash-saving measures had analysts and investors concerned over the future profitability of the company.
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