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By Jeremy Glaser | 01-21-2011 12:03 PM

GE on Solid Footing

With industrial orders rising, stabilization at GE Capital, and dispositions of non-core assets complete, General Electric is on track for a solid few years of results, says Morningstar's Daniel Holland.

Jeremy Glaser: For Morningstar.com I am Jeremy Glaser. General Electric reported better than expected fourth-quarter results and I am here with analyst Daniel Holland to take a closer look and see what the future holds for the company.

Daniel thanks for joining me.

Daniel Holland: Thanks for having me Jeremy.

Glaser: So first off, can you give me your initial take on General Electric results?

Holland: I think this quarter was pretty strong. It was better than what we expected. When we had industrial revenues growing, I think 6% organically and operating margins held up; you had a pretty solid result from the industrial segment and GE Capital continues to do better than what most people expect. So when you have all those pieces coming together, it was a good result then to top it all off, orders grew 12% in the quarter which is pretty strong for GE and sets up for a good 2011-2012 run here.

Glaser: People often see GE as a bellwether for how the broader industrial economy is doing. Did management have any comments about their outlook for the rest of the year?

Holland: I think that the outlook is pretty positive in general. When you think about the businesses that GE is in and the fact that the economy recovery is starting really to take hold. Businesses and corporations out there are beginning to become more comfortable with letting go of their dollars and making those capital purchases. So, I would expect, companies that are heavy diversified, industrial types, they are dependent on capital spending are going to start seeing orders pick up as well.

Glaser: Finally the NBC Universal deal looks like it is going to close in the coming weeks. What are they going to do with all this cash?

Holland: Well, the company has been pretty adamant in saying that we are not going to do big M&A deals that are outside of our core and to GE big means $3 billion or more. So, we would expect to see GE to continue to do deals of that size. They just raised the dividend back in December for the second time in a y ear. It is hard to see them raising the dividend again. I actually think that share repurchases are going to be back in vogue for GE and I would expect see a pretty big announcement once that deal finally closes, papers are signed and the check received.

Glaser: Do you think they have any other units that are going to be on the chopping block or do you think that they are happy with the business mix right now?

Holland: At the time I think that they are pretty happy with the business mix. There are pieces of the business that at one time may have been for sale. I might see those things come back on the block. And that would include maybe some parts of the consumer credit card portfolio that GE had or for example the appliance and lighting business that GE has. The company is comfortable running them, but at the right price I think that they are not necessarily core to what GE is trying to do at the moment.

Glaser: What is your view of the stock right now?

Holland: Right now GE is trading a little bit underneath our Fair Value. We still think that the company is worth about $25 a share. So there is still room for the stock to grow, but the share appreciation is much welcome.

Glaser: Daniel thanks so much for sharing your thoughts with me.

Holland: Thank you.

Glaser: For Morningstar.com, I am Jeremy Glaser.

 

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