This is an update of a previous report

As General Electric (GE) kicks off 2016 as a much purer industrial play than it’s been for more than a decade, it’s going to encounter a new world of risks and opportunities. Shares of the Fairfield, Conn.-based manufacturer dipped just over 1% Monday, against a nearly 2% decline in the broader Dow Jones Industrial Average. GE CEO Jeff Immelt is all too familiar with the price GE had to pay in playing the role of a hybrid manufacturer-lender: the messy entanglement in the housing-market collapse, GE’s sluggish share-price recovery relative to peers, the onerous “too big to fail” designation slapped on it by the Federal


Reserve in 2013, not to mention the ire of many of its stockholders.

That’s why Immelt decided to change course last spring, unveiling a three-year strategy to unwind GE Capital, the once-lucrative finance arm that’s long been viewed as a difficult segment to predict. GE Capital was largely responsible for GE’s disproportionate part in the Great Recession (shares of GE fell more than 64% in 2008 alone, vs. a 35% drop in the broader Dow Jones Industrial Average). Immelt recently made good on the first stage of his plan by closing more than $100 billion in sales of GE Capital assets.

The next item on the agenda is to take GE’s industrial share of profits to 90% by 2018 — an ambitious leap from just 58% in 2014. And a spate of recently earned, multibillion-dollar contracts is positioning the conglomerate to hit its target on time, William Blair analyst Nick Heymann said in a phone interview. “There’s tremendous growth opportunities in South Africa, and GE just won huge orders in India, and is supplying about half of a $15.5 billion hydro project in China,” Heymann said. “And Infrastructure growth from non-developed countries is helping them with organic growth that could allow them to fly above the turbulence of the global GDP next year.” GE has not disclosed how much of the $15.5 billion contract it will pull in from supplying turbines for the Chinese Wudongde power plant project being constructed by state-owned power company China Three Gorges. GE also has signed a $1 billion deal to set up power plants in Indonesia, earned a $2.6 billion contract to build railways in India, as well as a $1.9 billion agreement to establish a power network in Egypt. The most significant of GE’s industrial projects — which is being counterbalanced by the $154 billion signed divestitures this year — is the purchase of French turbine manufacturer Alstom’s European energy businesses.

This was finalized in November for $10 billion after months of antitrust hurdles, GE’s largest acquisition to date. Its industrial makeover is likely to expose GE to a host of new geopolitical risks, and will also demand a bullish confidence in the global economy. Helping in this regard is the company’s so-called Industrial Internet, a combination of GE’s proprietary software for data analytics and machine sensors on GE-serviced products. This will improve efficiency in mechanical operations ranging from railways to wind farms to airline engines, Heymann said. The new software has been highlighted in a recent marketing campaign, featuring video ads for GE that highlight GE’s technical prowess over its traditional perception as a heavy-equipment manufacturer.

Another area where GE may find savings could be in combining and streamlining its supply chains, Morgan Stanley analyst Nigel Coe wrote in a recent report. “Product insourcing is clearly a real opportunity to capture supply-chain profit pools,” he wrote.

“The past trend toward outsourcing was driven by a number of factors, but globalization and the need to move quickly to capture growth opportunities were clearly major factors, but less relevant now. In a low-growth world, where capital is less constrained, backward integration makes more sense.” The bright outlook in the oil and gas segment will also help support the transition, Heymann said. The oil and gas team has so far eliminated about $600 million in costs through combining operations this year, and is projecting about $400 million more savings in related synergies next year. But the amount GE would save through linking up oil and gas businesses next year may be $600 million to $800 million, Heymann said. “If they are able to save $800 million, it would allow GE’s oil and gas operating profits to actually go up next year, while everyone else in the industry is moving down 30 to 40%,” he added. “Basically, GE is setting up its oil and gas to be its largest driver of industrial growth; similar to how aviation was for its industrials through the ’90s and up to today.” Get an email alert each time I write an article for Real Money. Click the “+Follow” next to my byline to this article.

Employees of TheStreet are restricted from owning individual securities. William Blair or an affiliate does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. William Blair or an affiliate is a market maker in the security of this company.

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The data does update after 90 days if no rating change occurs within that time period. IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month. This is an update of a previous report.

As General Electric (GE) kicks off 2016 as a much purer industrial play than it’s been for more than a decade, it’s going to encounter a new world of risks and opportunities. Shares of the Fairfield, Conn.-based manufacturer dipped just over 1% Monday, against a nearly 2% decline in the broader Dow Jones Industrial Average.

GE CEO Jeff Immelt is all too familiar with the price GE had to pay in playing the role of a hybrid manufacturer-lender: the messy entanglement in the housing-market collapse, GE’s sluggish share-price recovery relative to peers, the onerous “too big to fail” designation slapped on it by the Federal Reserve in 2013, not to mention the ire of many of its stockholders. That’s why Immelt decided to change course last spring, unveiling a three-year strategy to unwind GE Capital, the once-lucrative finance arm that’s long been viewed as a difficult segment to predict. GE Capital was largely responsible for GE’s disproportionate part in the Great Recession (shares of GE fell more than 64% in 2008 alone, vs. a 35% drop in the broader Dow Jones Industrial Average).

Immelt recently made good on the first stage of his plan by closing more than $100 billion in sales of GE Capital assets. The next item on the agenda is to take GE’s industrial share of profits to 90% by 2018 — an ambitious leap from just 58% in 2014. And a spate of recently earned, multibillion-dollar contracts is positioning the conglomerate to hit its target on time, William Blair analyst Nick Heymann said in a phone interview.

“There’s tremendous growth opportunities in South Africa, and GE just won huge orders in India, and is supplying about half of a $15.5 billion hydro project in China,” Heymann said. “And Infrastructure growth from non-developed countries is helping them with organic growth that could allow them to fly above the turbulence of the global GDP next year.” GE has not disclosed how much of the $15.5 billion contract it will pull in from supplying turbines for the Chinese Wudongde power plant project being constructed by state-owned power company China Three Gorges. GE also has signed a $1 billion deal to set up power plants in Indonesia, earned a $2.6 billion contract to build railways in India, as well as a $1.9 billion agreement to establish a power network in Egypt. The most significant of GE’s industrial projects — which is being counterbalanced by the $154 billion signed divestitures this year — is the purchase of French turbine manufacturer Alstom’s European energy businesses.

This was finalized in November for $10 billion after months of antitrust hurdles, GE’s largest acquisition to date. Its industrial makeover is likely to expose GE to a host of new geopolitical risks, and will also demand a bullish confidence in the global economy. Helping in this regard is the company’s so-called Industrial Internet, a combination of GE’s proprietary software for data analytics and machine sensors on GE-serviced products. This will improve efficiency in mechanical operations ranging from railways to wind farms to airline engines, Heymann said. The new software has been highlighted in a recent marketing campaign, featuring video ads for GE that highlight GE’s technical prowess over its traditional perception as a heavy-equipment manufacturer. Another area where GE may find savings could be in combining and streamlining its supply chains, Morgan Stanley analyst Nigel Coe wrote in a recent report.

“Product insourcing is clearly a real opportunity to capture supply-chain profit pools,” he wrote. “The past trend toward outsourcing was driven by a number of factors, but globalization and the need to move quickly to capture growth opportunities were clearly major factors, but less relevant now. In a low-growth world, where capital is less constrained, backward integration makes more sense.” The bright outlook in the oil and gas segment will also help support the transition, Heymann said. The oil and gas team has so far eliminated about $600 million in costs through combining operations this year, and is projecting about $400 million more savings in related synergies next year. But the amount GE would save through linking up oil and gas businesses next year may be $600 million to $800 million, Heymann said. “If they are able to save $800 million, it would allow GE’s oil and gas operating profits to actually go up next year, while everyone else in the industry is moving down 30 to 40%,” he added. “Basically, GE is setting up its oil and gas to be its largest driver of industrial growth; similar to how aviation was for its industrials through the ’90s and up to today.” Get an email alert each time I write an article for Real Money.

Click the “+Follow” next to my byline to this article. Employees of TheStreet are restricted from owning individual securities. William Blair or an affiliate does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision.

William Blair or an affiliate is a market maker in the security of this company. William Blair or an affiliate expects to receive or intends to seek compensation for investment banking services from this company within the next three months. I’ve received a few queries today concerning my thoughts on the jobs report and I appreciate the interest and … This decline had some to do with oil, maybe some to do with China as well. However, the majority of the declin… Markets tanking as nobody wants to be long into the weekend and the potential of another Chinese stock market … The first SPX chart shows where the last timing cycles kicked in for a high. The second shows where the sell … Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features: $2.5+ million portfolio Large-cap and dividend focus Intraday trade alerts from Cramer Weekly roundups All of Real Money, plus 15 more of Wall Street’s sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis. Product Features: Real Money + Doug Kass plus 15 more Wall Street Pros Intraday commentary and news Ultra-actionable trading ideas Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests. Product Features: Model portfolio Trade alerts Recommendations for over 4,300 stocks Unlimited research reports on your favorite stocks David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features: Biweekly dividend newsletter Diversifed model portfolio of dividend stocks Intraday trade alerts Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks.

Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period. IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

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