Investors have bid up General Electric Co
Wall Street will be watching closely to see how well GE's big industrial businesses -- it is the world's largest maker of jet engines and electricity-producing turbines -- are doing to offset the troubles of its GE Capital finance business, which has been hard hit by the credit crunch and recession.
Chief Executive Jeff Immelt and other GE officials have said that while capital markets have improved significantly from the freeze of a year ago, they expect economic activity to be sluggish for the next year to 18 months, particularly so in their U.S. home market.
But better-than-expected results from fellow U.S. blue chip Alcoa Inc
There's a lot of market enthusiasm in the stock, and now it has to be validated with at least something that isn't horrible, said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio, which holds GE shares. If that's true, the stock goes sideways to up. If it's not, you're going to run into another 'I told you so' and the stock is going to decline.
GE shares are trading around $16.33, almost three times their 18-year low of $5.87 set in early March. Year to date, they are about flat, lagging the 13 percent rise of the Dow Jones industrial average <.DJI>.
'THINKING ABOUT 2010'
Wall Street expects GE's profit to fall by more than half to 20 cents per share, according to Thomson Reuters I/B/E/S, with revenue forecast to drop about 15 percent to $40 billion.
The performance of GE's industrial businesses could also provide investors with a sense of how next week's reports from fellow large-cap industrials United Technologies Corp
Beyond eyeing the Fairfield, Connecticut-based company's top- and bottom-line performance, investors will have a wary eye out for any signs of new weakness at GE Capital, which has invested heavily in commercial real estate.
If you look at the assets held by this finance business, there's really no good news, said Charles Ortel, managing director at Newport Value Partners, a New York research firm that has a $2 price target on GE and does not hold a long or short position in the stock. Could we see some surprises on the finance side? Absolutely.
On the industrial side, given that revenues are likely to be sharply down again, investors will be tracking new orders.
We're looking for orders to stabilize, and hopefully improve or at least be less negative, said Matt Collins, capital goods analyst at Edward Jones in St. Louis. You'll probably still see double-digit revenue declines, but investors are thinking about 2010.
GE shares trade at about 18 times forecast 2010 earnings, a premium to the Dow's 2010 price-to-earnings ratio of 13.
The company, regarded as a bellwether of the U.S. economy due to its size and the variety of its operations -- has stopped providing investors with per-share profit targets, instead offering a framework of how it expects its units to perform.
In July, Immelt said he expected GE's infrastructure units and NBC Universal units to report flat profits for the year. GE officials have also said they expect the finance arm to earn $2 billion to $2.5 billion for the year.
Friday could also bring more details of GE's plans for the NBC Universal media business. GE's partner in that business, Vivendi SA
Immelt this month said GE is exploring the possibility of selling the business through an initial public offering or finding another company to take a stake in it.
Sources have said that No. 1 U.S. cable company Comcast Corp
Investors have reacted warmly to the idea of GE selling a big piece of NBC Universal, in part because doing so would reduce the odds of the company needing to raise additional capital -- a significant concern for investors.
(Reporting by Scott Malone, editing by Dave Zimmerman)