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Is General Electric Company (GE) Burning Bright or Burning Out? – Siemens AG (ADR) (SI), Koninklijke Philips Electronics NV (ADR) (PHG)

General Electric Company (NYSE:GE), founded by Thomas Edison, is the oldest company in the Dow. In the century since its first public listing, GE has evolved into one of the largest companies in the world, operating in over 100 countries with a widely diversified portfolio invested in aviation, healthcare, energy and home & business solutions – making it a bellwether of the global economy.

Today, as the Dow closes in on record highs, investors wonder – is GE still burning bright like its iconic light bulb, or about to burn out?

General Electric Company (NYSE:GE)A bright fourth quarter

During its fourth quarter, General Electric Company (NYSE:GE) earned 39 cents per share, up from 36 cents per share a year earlier. It topped the analyst consensus by a penny. The company attributed its growth to strong demand for oil and natural gas equipment sales.

Meanwhile, revenue rose to $38.5 billion, an increase from $37.7 billion in the prior year quarter. GE Capital, its financing arm, was its most important segment, reporting 1.7% revenue growth to $11.77 billion. Revenue from its industrial business rose 3.9% to $2.07 billion.

Despite those gains, GE missed the analyst consensus of $40 billion.

Too far, too fast?

General Electric Company (NYSE:GE)’s stock price hit a new 52-week high in the first week of March. Although the stock has yet to reclaim its pre-recession price levels, the stock’s 23% climb over the past 12 months has prompted a bearish response from some analysts, such as Nomura Securities analyst Shannon O’Callaghan, who downgraded the stock from “buy” to “neutral.”

Is GE Capital dangerous?

GE still attributed 46% (before taxes) of its 2012 earnings from GE Capital, its maligned financial arm that nearly sank the company during the financial crisis. GE Capital’s earnings rose from $6.58 billion in 2011 to $7.40 billion in 2012. O’Callaghan believes that reducing that exposure to 30% to 35% would better insulate the company from any unpredictable financial headwinds.

For now, GE is not concerned about the size of GE Capital, since the segment paid out $6.4 billion in dividends to its parent company last year.

GE used this excess capital to repurchase $5.2 billion in common shares throughout 2012, and raised its quarterly dividend on common shares by 2 cents to 19 cents per share, bumping up its yield to 3.2%.

I believe that analyst concerns about history repeating itself are overblown. General Electric Company (NYSE:GE)’s business of providing financing options to its industrial customers is still an excellent way to generate additional revenue on top of equipment sales, considering that a bulk of GE’s industrial gains last quarter originated from oil and gas equipment.

Healthcare expansion

GE’s healthcare division is one of the company’s most important growth sectors, accounting for $5.18 billion, or 13.45%, of fourth quarter revenues. The U.K.-based division, which employs over 46,000, is split into seven operating segments.

General Electric Company (NYSE:GE) recently expanded its healthcare segment by inking a deal with HealthTrust to provide infant care solutions, such as incubators and warmers at its hospitals.

One important aspect of this business is GE’s Life Care Solutions, which provides equipment for the care of critically ill newborns in the NICU (Neonatal Intensive Care Unit).

Despite optimism regarding the healthcare segment, its fourth quarter sales were flat from the previous year, and only rose 1% for the full year. However, operating profit rose 7% for the fourth quarter and 4% for the year, signifying improving margins.

Versus competitors

General Electric’s primary competitors are Netherlands-based Koninklijke Philips Electronics NV (ADR) (NYSE:PHG) and Germany-based Siemens AG (ADR) (NYSE:SI). Although the portfolios of these three companies are all widely diversified, they overlap in enough industries to be considered rivals.

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