Can General Electric Surprise This Earnings Season?

Diversified conglomerate General Electric Company (GE) is scheduled to report its fourth-quarter and full year 2013 results before the opening bell on Jan 17. In the last reported quarter, General Electric’s operating earnings marginally beat the Zacks Consensus Estimate by a penny. Let’s see how things are shaping up for this announcement.

Growth Factors in the Fourth Quarter

General Electric is realigning its corporate structure to a manufacturing-based entity with emphasis on big-ticket items, such as, medical equipment and scanners. In a recent investor meeting, General Electric reiterated its strategic goal to focus on its industrial manufacturing roots and reduce dependence on the financial sector as it aims to increase the corporate profit share from the industrial units. Jeff Immelt, the Chief Executive of the company, further believes that 2014 will be relatively better than 2013 with record backlog of orders.

During the investor presentation, General Electric forecast double-digit growth in profits from aviation, healthcare and other industrial units in 2014, driven by higher investments in the industrial sector. Operating profit margin from the industrial businesses is expected to be 15.8% in 2013, up from 15.1% in 2012. At the same time, General Electric observed that it is currently on track to reduce its profit share from the financial units to 30% of the total by 2015.

Earnings Whispers?

Our proven model shows that General Electric is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +1.89%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #3 (Hold): General Electric’s Zacks Rank #3 increases the predictive power of ESP. Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
 
Cablevision Systems Corporation (CVC), earnings ESP of +77.78% and Zacks Rank #1 (Strong Buy).

Genco Shipping & Trading Ltd. (GNK), earnings ESP of +54.90% and Zacks Rank #2 (Buy).

Trinity Industries Inc. (TRN), earnings ESP of +2.11% and Zacks Rank #1 (Strong Buy).

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