According to a Reuters report, diversified conglomerate General Electric Company GE is likely to separate its renewable energy business from its power unit. The strategic move is a result of the successful acquisition of the energy assets of Alstom.
The new business unit titled Renewable Energy will reportedly include the wind and hydro power businesses of Alstom. With Alstom’s energy assets, General Electric is expected to be one of the biggest manufacturers of power plant equipment across the globe. As part of portfolio restructuring, General Electric is also likely to move a part of its distributed power business that manufactures turbines to its oil and gas unit from its power unit.
General Electric finalized the acquisition of Alstom’s energy assets in Nov 2015. The Alstom deal promises excellent return on capital, supply chain efficiencies and cost synergies to the tune of $3 billion in 5 years. It also marks the biggest acquisition ever for General Electric and would significantly expand its geographic footprint in a recovering Europe. In addition to incremental revenues, the deal further reinforces General Electric’s strategy to focus on core industrial operations.
Despite soft macroeconomic conditions and expectations of weak global growth in 2016, General Electric aims to build upon its momentum in 2015 for a healthy rise in operating profit next year. The company anticipates 2016 operating earnings to be within $1.45–$1.55 a share, with the Alstom deal contributing approximately 5 cents per share. This equates to year-over-year growth of nearly 15% (on the high end) based on current expectations of operating earnings of $1.35 a share in 2015. The Zacks Consensus Estimate for 2016 is currently pegged at $1.51 and lies comfortably within the guided range.
Organic revenue growth in 2016 is expected to be 4%. In addition, General Electric intends to return $26 billion to its shareholders in 2016, including $8 billion in dividends and $18 billion in share repurchases. Although the tally of shareholder return is set to drop from a payout of about $32 billion this year, it is primarily attributable to the overall shrinking of the company.
The corporate restructuring activities have positioned General Electric to probably become the first company to drop its too-big-to-fail label. The company is also seeking to apply for de-designation as a systemically important financial institution in the first quarter. We are impressed with the continued efforts of this Zacks Rank #3 (Hold) stock to sustain its growth momentum into the future.
Some of the other notable companies in the industry worth mentioning are EnPro Industries, Inc. NPO, Federal Signal Corp. FSS and Graham Corporation GHM, each carrying a bullish Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment