Diversified conglomerate General Electric Company (GE) is scheduled to report its second-quarter 2014 results before the opening bell on Jul 18. In the last reported quarter, General Electric’s operating earnings exceeded the Zacks Consensus Estimate by a whisker. Let’s see how things are shaping up for this announcement.
Growth Factors in the Second Quarter
General Electric is anticipating huge infrastructure orders to the tune of $10 billion in 2014 from Latin America on the back of surging demands for improved facilities for basic amenities and well being. During the next few years, General Electric expects revenues to increase 10–15% annually in Latin America, buoyed by higher demand to cater to the infrastructure requirements for industrial services such as power generation, transportation, water and oil. The company expects to achieve this through growth in markets in Argentina, Peru, Colombia and Chile, partially offset by a slowdown in Brazil – the biggest economy in the region.
During the soon-to-be-reported quarter, General Electric procured a huge contract to build the critical infrastructure in Angola related to the railway and energy sectors from the Export-Import Bank (Ex-Im) of the U.S. The deal financed by Ex-Im entails General Electric to supply $650 million of energy equipment and $350 million worth of railway machinery to Angola.
The steady stream of infrastructure orders support General Electric’s strategic goal to focus on its industrial manufacturing roots and reduce dependence on the financial sector to ease credit risks. General Electric had also filed an initial public offering (IPO) of its North American consumer lending unit. The IPO is expected to be closed by late 2014. Subsequently, GE Capital Retail Finance will operate under the name “Synchrony Financial” and will trade on the New York Stock Exchange under the symbol SYF. With the spin-off, General Electric expects operating earnings from its industrial business to aggregate 70% of the total operating earnings of the company by 2015.
Earnings Whispers
Despite the best attempts to restructure its business, our proven model does not conclusively show that General Electric is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.
Zero Earnings ESP: Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates a likely in line earnings for the shares.
Zacks Rank #3 (Hold): General Electric’s Zacks Rank #3 reduces the predictive power of ESP. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
American Airlines Group Inc. (AAL), earnings ESP of +1.56% and Zacks Rank #1 (Strong Buy).
American Campus Communities, Inc. (ACC), earnings ESP of +3.57% and Zacks Rank #2 (Buy).
Crown Holdings Inc. (CCK), earnings ESP of +4.00% and Zacks Rank #2 (Buy).
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