By Steven Russolillo
General Electric Co. is in need of an energy boost.
The industrial bellwether has been a perennial underperformer, trailing the Dow Jones Industrial Average over the past one, three, five and 10 years. Since the beginning of last year, they have registered three separate rallies in the double-digit percentages. Unfortunately, all three were short-lived.
Friday's earnings report could be the needed catalyst to get the shares going again, even though the headline numbers probably won't be great.
Analysts estimate first-quarter earnings of 17 cents a share, versus 21 cents a year earlier. Revenue is expected to have dropped 4.4% to $26.4 billion. GE's sales have missed estimates in 10 of the past 12 quarters, according to FactSet, although much of that is due to the slide in oil prices hitting the company's oil-and-gas business.
But there are other reasons for optimism: Under pressure from activist investor Trian Fund Management, GE said last month that it would double its planned cost cuts in industrial operations to $2 billion over two years. The stock has risen about 4% since then, outpacing the blue-chip index. GE could use Friday's earnings call as a way to outline more specific ways to trim costs.
GE has spent the past two years divesting its GE Capital unit and focusing more on the industrial part of the business. As The Wall Street Journal reported earlier this month, GE is considering a sale of its consumer-lighting business.
These moves have helped. The Federal Reserve no longer deems GE as a "systemically important financial institution," meaning it is free from the restrictions on buybacks. And then there is its agreement announced last fall to combine its oil-and-gas business with Baker Hughes Inc. The pact should prove beneficial once oil prices move higher.
GE's shift away from financials makes it more of a global growth story. And economies ranging from Europe to Japan to China have been on the upswing, which should benefit GE. Plus, already a big buyer of its own stock, GE said in January it would set aside $11 billion to $13 billion for share repurchases and another $8 billion for dividends. The 3.1% dividend yield is compelling and could be boosted by cash coming from cost savings.
The stock is reasonably priced, too. Fetching 17 times earnings projected over the next 12 months, GE's forward multiple is near its lowest over the past year. It is also cheaper than Caterpillar Inc. and Deere & Co., while roughly in line with Honeywell International Inc.
The ingredients are in place for yet another burst of enthusiasm to pierce the gloom for GE's long-suffering shareholders.