General Electric - July 18 GE Remains AAA Worthy (UBS)
GE posted 2Q05 net income of $4.6 billion ($0.44/share), up 24% from the year-ago period and in line with the consensus estimate. All 11 of GE's businesses reported double-digit earnings growth, and the operating margin rose 200 basis points to 14.1%. Credit profile remains AAA worthy: GE benefits from a very broad business mix with substantial contractual service revenues, a robust operating position, and a commitment to the highest level of credit quality. At 6/30/05, GE's debt/capital (accounting for GECS on an equity basis) was a low 9.2%, up 20 basis points from 3/31/05. GE's strong financial position is highlighted by its pension surplus of $6.7 billion at year-end 2004. Maintain Market Perform recommendation: Management narrowed its FY05 forecast, and now expects EPS to grow 12%-14%. In our view, GE's current bond spreads offer fair value given historical ranges and peer comparisons, and we maintain our Market Perform opinion.
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