Why Argus Expects General Electric EPS To Be At Top Of Management's Guidance

The Quarter

"We believe that GE will continue to benefit from its restructuring to focus on its Industrial Group, as well as from its diverse product lines its strong presence in the power generation, aviation and healthcare markets," analyst John Eade wrote in a note.

Eade, who reaffirmed his Buy rating on GE shares, said the blue-chip industrial company should witness higher earnings post restructuring.

Other positives include margin improvement, growing backlog, solid growth in Industrial business and slimmer GE capital. At the end of the second quarter, the backlog grew 18 percent to $320 billion, and up $4 billion quarter-over-quarter.

Related Link: GE's Q2 Results Keep It ON Track With Overall Plan

Guidance, Analyst Estimates

GE reaffirmed its 2016 guidance, including EPS of $1.45–$1.55, organic revenue growth of 2–4 percent, and cash flow from operations of $29 billion–$32 billion after reporting better-than-expected EPS for the second quarter.

Eade maintains his 2016 EPS forecast of $1.55, which is at the top of management's guidance range. The analyst also maintains his 2017 EPS forecast of $1.75, based on expectations for continued margin expansion and a recovery in the oil & gas business. Eade's five-year earnings growth rate forecast is 6 percent.

The GE board has authorized a repurchase program of up to $50 billion in common stock. The company plans to maintain its dividend at the current level in 2016 and grow it thereafter.

In January 2015, GE raised its annualized dividend by 5 percent to $0.92, for a yield of about 2.8 percent, which is attractive in a low-interest-rate environment. Eade's dividend estimates are $0.92 for 2016 and $0.98 for 2017.

At the time of writing, shares of GE fell 1.93 percent to $31.43, while Eade has a price target of $36. Over the past year, the shares have outperformed, with an increase of 24 percent versus a 4.5 percent gain for the S&P 500 index.

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