Should You Get Excited for GE’s Earnings?

For some crazy reason, 28 different analysts now have buy recommendations on
General Electric (NYSE: GE ) according to MarketWatch, this is the most since
2008. But should you, the intrepid investor, care? As far as what analysts say
regarding buy and sell, absolutely not these guys are only good for providing
earnings estimates. However, should you care about the companys earnings? Yes!
When I wrote about General Electric back in October, as part of the Should You
Buy The Dow series, I pointed out that GE really is the ultimate conglomerate.
General Electric has its fingers in appliances, aviation, electrical
distribution, energy, health care, lighting, oil & gas, rail, software &
services, business and consumer finance, water and — well, just about
everything . GE isnt just a bellwether of the economy, but the poster child for
the Dow Industrials, and it should be a part of your core holdings in a
diversified portfolio. So just how good are these earnings supposed to be, and
what does it say about the company, the market and the economy? Analysts are
pegging year-over-year growth at an astonishing 22% 38 cents per share vs. 31
cents. If earnings come in as expected, well want to drill down by segment and
make certain they are performing as expected. They cant all be going
gangbusters, but thats the beauty of GE diversification allows for certain
segments to drag while others do well. But is everything perfect at General
Electric? Not necessarily. Those earnings are not the result of top-line growth.
In fact, revenue has been declining at GE for some time. It peaked at $181.5
billion in FY 2008, but then got clocked by the financial crisis. In FY 2009,
revenue fell to $155.3 billion, down to $150.2 billion in FY 2010, and is
projected to come in at $149.3 billion for FY 2011. Sure enough, like most
companies, GE has been slicing expenses. Cost of revenue fell from $83.7 billion
in FY 2008 to an estimated $72 billion this year. SG&A declined from $42 billion
to an estimated $37 billion over the same period. The question naturally arises
will revenue pick up again? What we see is that the revenue deterioration has
slowed considerably. A company can only cut expenses for so long. Still, if you
buy analysts estimates that project $2.48 per share for 2015, and a premium P/E
of 15 is deserved for a company that generated $20 billion in free cash flow in
the trailing 12 months, then you get a $37 target or almost a double from here.
That means theres plenty of room for error. Tack on a 3.6% dividend yield, and
that still makes GE a buy in my book. As of this writing, Lawrence Meyers did
not hold a position in any of the aforementioned stocks.