Is General Electric Taking Flight? highlighted General Electric yesterday, noting that only 16 days into the New Year, GE has already surpassed 2006 levels in terms of total spend on acquisitions. Following last week’s $1.9 billion bid for Vetco, GE on Monday announced plans to buy the aerospace division of Smiths Group for $4.8 billion, which already puts the company at its capital spending target set by CEO Jeffery Immelt in December. But that’s ok.

With a surplus of capital, which includes the possible sale of its plastic business, GE’s expansion into the aerospace industry is all part of Immelt’s growth strategy. See, GE wants to expand its presence within the aerospace industry – beyond the engine and into the guts of the aircraft. Smiths’ products and services span the entire aircraft industry, both military and commercial, from the mechanical and electrical power systems to engine components and digital displays, giving GE greater control as a major equipment supplier.

They also provide common core systems and several critical mechanical systems on Boeing’s (BA) market-changing Dreamliner 787 platform, as well as Airbus and defence contractors like United Technologies (UTX). While GE appears to have paid a full price, the Smiths transaction provides GE the scale and breadth to compete effectively, realize cost synergies, and drive overall growth. Briefing expects Immelt’s growth strategy will continue to include acquisitions.
GE, which reports fourth quarter earnings Friday, is expected to generate earnings growth of 12% this year.
The stock is trading at 17x forward earnings with dividend yield of 2.96%.
Source: Cannacord Capital

Leave a Reply

Your email address will not be published. Required fields are marked *