General Electric (GE - Free GE Stock Report), a huge industrial conglomerate and Dow-30 member, has reported first-quarter financials that were basically on par with consensus expectations. Truth be told, the company remains in one of the largest transitions in the history of the U.S. business landscape, as it is selling off finance-based assets in favor of getting back to its core industrial roots. With that, the consensus is wide, and earnings predictability is not ideal. Initially, the shares responded favorably to the news, rising 1% in the premarket. But, in the first trading hour that move has changed to a drop of 1%, as geopolitical fears and oil-related concerns have brought the overall market down from what was a solid start to the day.

Looking at revenues for the March period, the top line came to $27.76 billion, ahead of our $27.0 billion call and the Wall Street consensus, which gyrated within $1 billion of that figure either way over the past few weeks. Sales excluding acquisitions grew 7% and orders climbed 10% from the year-earlier tally. The majority of its industrial components performed admirably, especially given the slow growth environment on the global front. As has been the case of late, the one noticeable laggard was the oil & gas division, which saw markedly lower sales due to historically low pricing in the oil & gas patch. Looking ahead, CEO Jeffrey Immelt struck a somewhat bullish tone on the conference call when he noted that global growth was seen to be accelerating. Mr. Immelt has recently visited China, Southeast Asia, Latin America, and Africa, and stated that all looked stronger than at this time last year. It was also pointed out that U.S.-based operations are improving.

From a bottom-line perspective, share net came in a few pennies higher than what we and Wall Street were looking for. Earnings per share totaled $0.21, versus the $0.18 consensus. Earnings attributable to GE shareholders was up handsomely on a year-over-year basis. That figure rose to $858 million, as compared to $248 million in the first quarter of 2016. Still, much of the focus on the earnings front was on the continuation of a plan to trim $2 billion from the cost ledger over the next two years. With the wind down of GE Capital largely complete, the goal is shifting to getting leaner from an expenses perspective. Trian Fund Management has placed a large amount of heat on the company to get costs down and push the earnings needle to the $2.00 mark by 2018. Our current call for 2018 EPS remains at $1.90, but we do acknowledge the upside if the cost cuts are delivered in earnest. In that vein, the motivation is certainly there for the management team. Trian worked out an agreement where Mr. Immelt and his senior management team get a 20% hike in their bonuses if $17.2 billion in industrial operating profit is achieved, while reducing structural costs by $1 billion this year and next. It was stated on the earnings call that the $1 billion for 2017 looks to be on track, though we note that the company has only reached the one-quarter pole on the calendar, so over enthusiasm is not yet warranted.

Two important events will need to be monitored on the M&A front in the coming months. First, the company's deal with Baker Hughes (BHI) to combine its oil & gas businesses remains on track. Management has said the deal will close in mid-2017, which is now not too far off. Significant savings through synergies will be the primary target here initially, and it cannot come fast enough, as this arm has been struggling for some time now due to the aforementioned industry-specific woes. Next, it appears GE wants to sell the lighting business it helped pioneer 125 years ago. A sale here would only bring in about $500 million, but its significance goes beyond dollars. Moving away from consumer electronics and towards machinery (engines, wind turbines, etc.) is the next step in the transition process, in our view. 

Adding all this up, is GE stock appealing from an investment standpoint? Yes. The primary draw on this good-quality equity (Safety: 2) at this juncture is its dividend. The yield is currently around 3.2% (the Value Line average is 2.0%) and is well-supported by rock solid financials. Too, being released from the SIFI designation brought on after the most recent recession has the payout poised to rise rapidly in the coming years, assuming no hiccups in the monstrous transition the company is still undergoing. The income component also contributes to GE's above average total return potential for the pull to 2020-2022. The coming six to 12 months, however, may not be a breakout period for this equity's quotation. Investors have been hesitant to bid the stock up significantly past the $30 mark on a consistent basis. That said, a buy on the dips approach may be the best way to play this situation in the current market.

About The Company: Founded in 1892, General Electric Company has grown into one of the largest and most diversified industrial companies in the world. With products ranging from aircraft engines, power generation, oil and gas production equipment, and medical devices.  It is in the process of completely divesting its sizable finance operations under its GE Capital Exit Plan. It serves customers in more than 180 countries. On a geographic scale, 57% of General Electric's revenues came from overseas in 2016. 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.