Goldman Sees Near-Term Gains In GE Following Underperformance

Following modest underperformance since 3Q results, Goldman believes GE GE shares can regain momentum over the next several weeks as the GE Capital outlook webcast on Tuesday, December 7, and GE annual outlook investor meeting on December 14 refocus investors on potential for multi- year EPS growth at GECS, an Industrial upturn in 2012 and increasing impact from capital allocation. For GECS, we project 2011 pre-tax/net income of $6.1bn/$5.4bn, up sharply from $2.2 bn/$3.2 bn in 2010, with loss provisions dropping to $5.9 bn from $7.6 bn and strong new business margins and reserve releases also contributing. Balance sheet shrinkage is ahead of plan, CRE remains tough, but in line with expectations, and asset sales could improve capital productivity. Acquisitions, buybacks and dividend increases should also be catalysts moving forward, with GE currently at a 2.9% yield and positioned to boost the dividend by over 30% within the next 6-9 months. Goldman has a Buy rating and $19 PT on GE GE closed Friday at $16.78