NEW YORK (CNN/Money) -
General Electric's third-quarter earnings report last week may not seem impressive on the surface, but it was received by most analysts with considerable enthusiasm.
GE has always been regarded as a bellwether for the economy, and Friday's results pointed to the continuation of the economic recovery. In addition, they signaled the likelihood of a new upswing for GE stock.
Quarterly revenues climbed 15 percent beating analyst expecatations, helped by higher industrial sales and the lift given to GE's NBC Universal broadcasting unit by the Olympics. Revenues were also enhanced by recent acquisitions.
Earnings, however, were more difficult to assess. Reported results of 38 cents a share were in line with the analyst consensus.
Compared with year-earlier levels, earnings were up 11 percent after accounting changes and various other adjustments are taken into account. Excluding those adjustments, the recent quarter was actually down slightly.
Why would analysts take such a positive view of earnings that are average-looking even under a favorable reading?
The answer is that trends at GE's individual businesses suggest a pickup in momentum that could boost the high-quality stock's total return potential over the next five years to a level above that of the overall market.
For starters, although GE (GE: Research, Estimates) has not received a great deal of attention lately, the stock's performance has been consistent and impressive. Since early 2003, GE shares have risen more than 50 percent and have held up well during the recent market setback.
 | | A 17-part series on how to achieve maximum returns for the right amount of risk. See all the lessons. |
|
In addition, GE is showing increasingly broad economic strength in a variety of industries. For the quarter just ended, eight of GE's 11 businesses posted double-digit earnings increases.
Among the specific divisions, Consumer and Industrial, Healthcare, Transportation and Broadcasting all posted earnings gains above 20 percent.
The losers were Energy, Advanced Materials and especially Insurance, which was hammered by losses caused by Florida hurricanes. Results for those divisions -- and particularly for Insurance -- are likely to improve going into 2005.
GE has confirmed that the company is on track for solid fourth-quarter results this year, in line with analysts' estimates.
Moreover, improving business conditions are projected to lift the company's profits more than 12 percent in 2005. Analysts who are bullish on the stock see even stronger advances in 2006.
In addition to solid bottom-line growth, GE currently pays a generous 2.3 percent dividend yield. Combined with earnings growth, that suggests a total return potential of 14 percent to 15 percent annually over the next few years.
At a current $34 a share, GE trades at just over 19 times projected earnings for 2005. That's a fair price to pay for one of America's top companies that is finally getting a boost from an improving economy.
Michael Sivy is an editor-at-large for MONEY magazine. Click here to receive Sivy on Stocks via e-mail every Monday and Thursday.
|
