GE Transportation Gets 225 Orders For Modernized Locomotives

GE Transportation, one of the operating segments of General Electric Company (NYSE:GE) , announced that it has secured orders for 225 refurbished locomotives from several North American railroads in 2018, without disclosing the names of its clients.

GE will also deliver 80 and 100 modernized locomotives previously ordered by Canadian Pacific Railway Limited (NYSE:CP) and Norfolk Southern Corporation (NYSE:NSC) , respectively throughout the year. With an increase in production schedule with a surge in demand, GE’s one million square-foot facility in Fort Worth is now the world’s largest locomotive modernization facility. The latest orders show that major railroads are seeking to control costs by refurbishing old machinery instead of purchasing new engines.

The modernization program is aimed at updating aging locomotives, some more than 20 years old, with customized solutions. These range from simple changes including control system upgrades to complex restorations such as the comprehensive transformation of an aged DC locomotive into an AC locomotive with state-of-the-art digital technology.

GE Transportation targets to increase the asset value of locomotives over their lifecycle through the upgrades and optimize future growth opportunities for its customers. Modernizations also extend the service life of locomotives by approximately 20 years. Customers have also experienced substantial outcomes from the program, including up to 10% fuel efficiency gains, 40% increase in reliability and 50% increase in haulage ability. On the cost front, the whole process is cheaper than buying a new one.

This modernization program of GE Transportation has transformed more than 2,000 locomotives for customers worldwide in the last decade, including the majority of Class 1 Railroads in North America as well as international customers. These modernizations help to realize more value out of existing locomotive assets.

According to chief executive officer, John Flannery, GE intends to exit at least $20 billion in operations to improve its financial performance. The company continues to explore options for its transportation unit, lighting division and healthcare information technology business.

GE has underperformed the industry in the last three months, losing 22.1% on an average compared with a decline of 5.3% for the latter. Moving forward, the company intends to focus on three core segments — power, aviation and healthcare equipment — which require advanced hi-tech products with a high degree of reliability. These products generate higher margins and are likely to contribute to long-term growth, thus lifting shares up.

General Electric carries a Zacks Rank #4 (Sell).

A better-ranked stock in the industry is Leucadia National Corporation (NYSE:LUK) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Leucadia has an expected long-term earnings growth rate of 18%. It exceeded earnings estimates thrice in the trailing four quarters with an average of 6.6%.

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