General Electric Company (GE): Why This Stock Could Be a Smart Investment

Over the past few years, General Electric Company (NYSE:GE) has posted robust growth in several business divisions. The company expects to report a strong performance this year as well, especially in the healthcare division. Sales from this division have grown at a CAGR of 4.5% over the last three years. Going forward, based on GE’s strong focus on research and innovation, I expect the company to continue reporting consistent growth. Below is a snapshot of GE’s Q1, 2013 results.

Revenue was below expectations and the earnings growth was relatively low in various industrial divisions, particularly in Power & Water. The Power & Water division, which includes wind power, declined heavily due to a noticeable drop in demand for installations of wind turbines. Of late, the sluggish wind power capacity in China, coupled with slump in natural gas prices in the U.S., has affected the inflow of investments in the wind power sector on a worldwide scale.

However, earnings from other industrial divisions increased 6%, as robust growth was reported in the transportation, healthcare, and aviation segments. GE Capital posted 9% growth in profit during the quarter, in addition, orders for the company also grew by 10%.

The rapidly growing demand for aircraft engines and oil and gas equipment is likely to push GE Capital’s backlog to a sky rocketing $216 billion.

Noticeable trends in key segments

The Power & Water segment witnessed a massive decline of 26% in sales. A considerable drop in demand for wind turbines globally, particularly in Europe, contributed to the decline in sales. Within the U.S, recoiling natural gas prices resulted in a low demand for wind turbines, hence, it poses a huge threat to potential investment inflow for wind farms.

Other segments, which include Aviation, Transportation, Healthcare, and Oil & Gas, reported  moderate numbers. Within the Aviation and Oil &Gas segments, orders grew 47% and 24%, respectively. The increase in orders is predominantly underpinned by a rapid increase in demand for new aircrafts from airlines. This also led to higher shipment volumes for airplane engines that are developed by General Electric Company (NYSE:GE).

In the Oil & Gas sector, where GE supplies drilling equipment, growth was reported on the back of rising global demand for Oil & Gas. The increase in demand is a result of higher energy consumption from emerging markets such as China, India, and Brazil. It is noteworthy that the decline in the Power& Water segment was made up by growth in other industrial divisions.

Competitive landscape

General Electric Company (NYSE:GE)’s Aviation competes directly with United Technologies Corporation (NYSE:UTX)‘s Pratt and Whitney Aircraft Engines. United Technologies Corporation (NYSE:UTX) generates the highest percentage of its revenue through UTC Climate, Controls & Safety at around 29%. This is followed by Pratt and Whitney Aircraft Engines and Otis Elevators at around 24% and 20%, respectively. The remaining revenue is generated through UTC Aerospace systems and Sikorsky Helicopters.