Briefing.com 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 weekâ€™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 thatâ€™s ok.
With a surplus of capital, which includes the possible sale of its plastic business, GEâ€™s expansion into the aerospace industry is all part of Immeltâ€™s growth strategy. See, GE wants to expand its presence within the aerospace industry â€“ beyond the engine and into the guts of the aircraft. Smithsâ€™ 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 Boeingâ€™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 Immeltâ€™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