Earnings Preview: General Electric, a Bellwether

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With all the back-and-forth between NBC talk show hosts Jay Leno and Conan O'Brien over who is the rightful heir to the late-night slot, you'd get the impression that General Electric's (GE) main businesses is a television network.

It's best to keep a sense of perspective: GE, a closely-watched industrial giant, reports fourth-quarter earnings Friday before the market opens, and the company is a virtual mutual fund in one company -- and a good gauge of the health of the U.S. economy.The First Call Q4 EPS consensus estimate for GE is 26 cents and the FY2009 EPS estimate is $1.00. First Call also expects GE to earn 15 cents and 94 cents in Q1 2010 and in FY2010, respectively.

All Eyes On GE's Revenue, Orders

And as part of that 'snapshot of the economy' evaluation, Wall Street will want to see more cutbacks in GE Capital Finance's portfolio, along with increased provisions for loan losses. To some, increased provisions may be interpreted as a negative data point. However, for many institutional investors who've been through the financial crisis, they're not: they're a sign that a company has the resources and is prepared for any additional asset-basked securities problems that may occur ahead. Overall, institutional investors want to see signs that the worst of the loss-making conditions is over for GE Capital.

Second, institutional investors will also focus on GE's industrial units, including sales and orders for electric power generation units, gas turbines, wind turbines, compressors, industrial and water systems -- the heavy-duty machines and systems that say a lot about the overall strength of industry in the U.S. and global economies. Wall Street will also focus on GE's emerging market orders in these areas, and if they're strong, that would be a sign that the global economic recovery is gaining steam.

Wall Street will also evaluate GE's technology infrastructure unit, maker of everything from commercial and military jet engines, to health care x-ray machines; and the performance of it consumer/industrial unit (refrigerators, washers, dryer, cooking range, light bulbs) to gauge the strength of the U.S. recovery.

GE's stock chart has been in a choppy uptrend for about one year, rising from $7 in March to about $16.50, meaning that a recovering global economy has been factored into GE's stock price. Hence, any signs of slowing orders will push the shares lower, but that's not likely to happen in Friday's report. Look for GE to meet the Q4 earnings estimate, and increase earnings guidance for Q1 2010 and for FY2010.

Stock Analysis: I have a Buy rating for the company, first recommended on March 2, 2009 at a price of $7.58. If you bought GE in March 2009, you're up an impressive 111%. If you didn't, don't fret: there's more upside ahead for GE. Sell/Stop Loss if you were to buy shares in this company: $9.25.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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