GE Signs Contracts In Aviation & Power To Retain Core Focus

Industrial goods manufacturer General Electric Company (NYSE:GE) recently inked two new contracts in the Aviation and Power segments in its continued efforts to sustain focus on the core business focus. The Aviation contract totaling $143 million was obtained from the U.S. Navy, while the Power segment contract worth $400 million was procured from the Iraq Government.

The Aviation Deal

Per the terms of the deal, GE Aviation will manufacture 22 T408-GE-400 engines to power the CH-53K King Stallion helicopters, primarily used by U.S. Marine Corps. These advanced engines will enable the U.S. Naval Air Systems Command to execute higher workload through the copters by carrying a 27,000-pound external load over a mission radius of 110 nautical miles in extreme weather conditions. This is almost triple the workload executed by the existing CH-53E Super Stallion copters powered by GE Aviation’s T64 engine.

The new T408 engines will reportedly offer more than 57% power compared with the existing T64 engines, thereby consuming 18% less fuel and saving energy. In a nutshell, the new engines will function excellently in environment-friendly conditions, increasing the durability and ruggedness of the engines to withstand an inclement weather.

The engines will be manufactured at various GE Aviation facilities with parts supplied from facilities in Dayton, OH; Lynn, MA; Hooksett, NH; Madisonville, KY and Jacksonville, FL.

The Power Contract

Per the contract with the Iraq Government, GE will help develop the country’s electrical infrastructure by building 14 electric substations. At the same time, the company will supply critical equipment such as transformers, circuit breakers and other outdoor equipment to revamp the existing substations in tune with the various upgrades available in the market.

The contract will facilitate GE to help the war-ravaged country save on electricity costs while hooking up power plants in various provinces to the national grid. The company is also likely to help the relevant ministry secure funding from various financial institutions to implement the infrastructure upgrade.

Moving Forward

Shares of GE have underperformed the industry it belongs to. The stock has slumped 42.6% year to date compared with the industry’s decline of 5.9%. In order to boost the company’s sagging shares, CEO John Flannery has decided to focus on just three core segments — power, aviation and health-care equipment — and gradually exit all other businesses. GE further intends to have asset sales worth $20 billion to improve its liquidity.

Flannery has termed 2018 as a reset year and expects the company to stage a turnaround to reward its shareholders with risk-adjusted returns. Critics, however, have widely raised concerns about the efficacy of such steps.

Despite the headwinds, the recent contracts are likely to drive the company’s strategic objectives as well as enhance its revenues.

Zacks Rank & Key Picks

GE has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the industry include Danaher Corp. (NYSE:DHR) , Federal Signal Corp. (NYSE:FSS) and Leucadia National Corp. (NYSE:LUK) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Danaher has a long-term earnings growth expectation of 10.6%. It has surpassed estimates in each of the trailing four quarters with an average positive surprise of 2.6%.

Federal Signal has delivered an earnings beat thrice in the trailing four quarters with an average positive surprise of 11.5%.

Leucadia has an expected long-term earnings growth rate of 18%. It has exceeded estimates thrice in the last four quarters with an average beat of 21.2%.

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