What Helped General Electric Beat Its 1Q16 Earnings Expectations?
Alstom’s revenues, earnings, and order book
The Alstom acquisition closed 18 months after it was announced. It didn’t contribute to General Electric’s (GE) 1Q16 revenue. The management expects that Alstom is on track for earnings per share of ~$0.05 in 2016. Alstom’s order book stands at $3.0 billion.
By 2018, management expects additional earnings of $0.15–$0.20 from the deal. GE believes that it will achieve $3 billion in synergies by 2018.
GE is a part of the Industrial Select Sector SPDR ETF (XLI) and accounts for 11.7% of the total holdings. Investors in this ETF may benefit if GE achieves desired synergies from the deal.
General Electric-Alstom business synergy
While GE is the world leader in gas turbines, it lags behind rivals in steam turbine technology. However, Alstom has a large presence in steam turbines. GE expects Alstom’s expertise will be handy in gaining an edge in combined cycle gas plants, which typically employ gas turbines as well as steam turbines. The deal would also increase GE’s installed thermal assets base by 50% to 1,500 gigawatts, increasing opportunities for the service business. GE acquired the power business of French manufacturer Alstom on April 30, 2014.
Investors interested in trading in industrials can look into the Fidelity MSCI Industrials ETF (FIDU) and the iShares Morning Star Large-Cap Value ETF (JKF). Top holdings of the FIDU ETF are GE with a 13.4% weight, 3M (MMM) with a 4.6% weight, United Technologies (UTX) with a 3.8% weight, and Honeywell International (HON) with a 3.7% weight.
In the next part, we’ll analyze GE’s valuations compared to its peers.
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