Wednesday, December 06, 2006

Calls of Note Part 4

- Goldman Sachs is adding General Electric (NYSE:GE) to their Conviction Buy List with 19% upside to $42 12-month price target. At this point in the cycle, in a moderating growth operating environment and greater uncertainty in the industrial sector, they believe investors will gravitate to GE's late-cycle exposure, high-margin services mix, emerging markets strength, and attractive earnings visibility/consistency. The upcoming Dec 12 Outlook meeting has the potential to be a positive catalyst. Firm is looking for P/E multiple expansion and 10%-12% earnings growth in 2007 for GE, one of the Multi-Industry Primes that has lagged the market YTD.

Catalyst: GS believes GE's upcoming Dec 12 Outlook meeting with Jeff Immelt has the potential to be a positive catalyst, where the shares have rallied into this meeting in four of the past five years. They expect GE's 2007 outlook to compare favorably to other Multi-Industry companies on a risk-adjusted basis, with a solid case for 2x-3x World GDP core revenue growth and 10%-12% EPS growth driven by late-cycle and services mix contributing to meaningful margin expansion. Seasonal 4Q strength and a post Fed-tightening scenario could also be positive factors for GE shares to outperform over the near term.

Notablecalls: UBS commented on GE yesterday (see archives) saying 10-12% EPS growth may not be enough to keep investors happy. Now we have Goldman saying they expect multiple expansion on top of this growth. Go figure. My gut is telling me GE stock won't do much ahead of the meeting.

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