Analyst Actions: General Electric Estimates Raised at Credit Suisse
Outlook Meeting: Equipment margins may be down, but Energy profits rebound; Raising Estimates.
Energy profits rebound: "GE confirmed Energy profits will return to growth in Q411 (vs. down double-digits in the 9M11), which leads us to slightly raise our Q411 EPS estimate; our overall EPS estimates move to $1.36 and $1.50 for 2011 / 2012; our 2013 EPS estimate is also raised to $1.71 from $1.70; our TP remains unchanged. The higher restructuring in Q411 ($0.03-0.04, in the corp line) was already factored into our forecasts. We were re-assured that the risk to Healthcare in 2012 looks manageable, given that emerging markets form a larger share of GE's sales than Europe in this business (15% vs 10%). We show our overall EPS bridge in 2012 - the corporate line remains a major swing factor, partially offsetting 15-20%+ earnings growth in Industrial / Capital next year.
But Equipment margins could be down in 2012: GE's '12 guidance implies Equipment margins are flat / down, despite tail-winds from a shrinking 'value gap', operational leverage, and R&D leveling off. A key reason is 'mix', with rising GEnx shipments a factor - we highlighted this in our 'MTU implications' note dated Nov 23, but it does suggest (i) Wind will still weigh on margins; (ii) Some upside may exist to this guidance.
China gas opportunity: GE highlighted this as a major potential upside surprise, which concurs with our view (see our reports 'China Gas Turbine Opportunity' dated Nov 29, and 'Chinese Shale Gas Drilling' dated Dec 8) that China could be the #1 gas turbine market globally. GE expects to claim a third of the potential equipment market if this occurs.
The stock: The affirmation of double-digit earnings and dividend growth in 2012 should be well-received, as is the fact the company is restructuring its European operations. Despite recent outperformance, we still see some scope for a catch-up, given the undemanding '12 valuation, and yield.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Copyright (C) 2016 MTNewswires.com. All rights reserved. Unauthorized reproduction is strictly prohibited.