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Has GE Turned the Corner?

Jeremy Glaser

Jeremy Glaser: Hi, I'm Jeremy Glaser, with Morningstar.com, here with equity analyst Daniel Holland, who covers General Electric GE, which reported first quarter earnings this morning, and I have a few question about those for him.

So, Daniel, I think one of the big questions on everybody's mind is what's going on with GE Capital? Has this part of the business that's been struggling for so long started to turn the corner?

Daniel Holland: It's tough to say that it's actually turned the corner. They're really coming into the thick of the problems, which is kind of what started the conversation earlier this quarter, which eventually led the company to call an analyst meeting in the middle of March.

One of the things that you have to look at is, watching the charge-offs and the delinquencies, things like that, they're continuing to rise, because, as you think about it, we're really looking at the brunt of a recession. Unemployment's still not the greatest. And commercial real estate and whatnot has not come back down yet.

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Jeremy Glaser: So do you think this part of the business is going to continue to drag down the rest of the core of General Electric, or do you think we're kind of past that problem?

Daniel Holland: No. In the near term, I don't see any kind of positiveness coming out of GE Capital. If there's nothing there, then it's going to be good. Culling out a couple of years, there's still a decent amount of earnings power within GE Capital. So, when you think about that, it's still a decent enterprise, something that they should be in. It's just that the near term doesn't really offer much potential.

Jeremy Glaser: So how are the other businesses performing?

Daniel Holland: When you look across the industrial spectrum, you have kind of a mixed bag of things. You kind of first take a look at the energy sector, which has really been the backbone of growth for the company for the last couple of years, and it really continued to perform really well.

And on top of that, aviation did mildly well, pretty well in the quarter. But then, you have to temper that with kind of what happened within NBC Universal, for example, or Consumer Industrial, where they saw, basically, double digit declines in revenue.

Jeremy Glaser: So I know a lot of investors are interested in General Electric because of the dividend. And people are concerned, with the cut earlier. Do you think the current dividend is sustainable at this level, and when will you expect it increase?

Daniel Holland: I think the dividend is sustainable at this level. I mean, we're already talking about only 10 cents a share per quarter for a little while here. That's something that is easily within GE's reach. It could be argued that it might be a little bit more, but right now, I think the key thing to think about is keeping the capital within GE so that it has opportunities to reinvest within its business and also within GE Capital. And when you think about it, a couple years down the road, or even sometime in 2011, it's quite possible that dividend might come back.

Jeremy Glaser: So do you think GE's a buy today?

Daniel Holland: Well, right now, GE, trading around $12 a share or so, is a 4-star within Morningstar's universe. There is some potential within the business, but right now, it's kind of on the brink of either being a buy or a hold. So I would kind of hold on the fences for a little bit.

Jeremy Glaser: OK. Great. Thanks for talking with me today. I'm Jeremy Glaser with Morningstar.com. Thanks for watching.

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