General Electric (NYSE: GE), one of America’s oldest companies founded by Thomas Edison in 1892, is in the midst of a transition to totally revamp its business model.
The plan is to move away from consumer lending and instead focus its stockpile of cash – bigger than the company has seen in a decade – on new acquisitions in the oil and gas industry.
Gone will be GE’s healthcare financing unit and its various consumer credit businesses. GE already has an oil and gas division that employs people in upwards of 100 countries, and investments of $15 billion have been made to date on equipment to improve hydraulic fracturing, or fracking – a crucial stepping out party for GE’s public relations.
Since 2008, when the shale boom took off here in the U.S., GE’s fastest-growing business unit has been its oil and gas.
In July, GE purchased Lufkin Industries (NASDAQ: LUFK) for more than $3 billion. And GE has another $19.3 billion that it plans to use on takeovers for its burgeoning unit.
Its sights are now set on Dresser-Rand Group Inc. (NYSE: DRC) and Dril-Quip Inc. (NYSE: DRQ) , according to Bloomberg. Similar acquisitions have already raised annual sales by 54 percent in four years to $15.2 billion in 2012.
And it all falls on the heels of the U.S. drilling revolution that has seen American production soar at a record pace, going higher and higher each and every year.
If the assets are right, GE will continue to expand upon this blossoming part of its business.
Dresser-Rand, which makes compressors and turbines, along with Dril-Quip, a subsea drilling equipment manufacturer, are the next attractive GE targets. The Houston-based companies are valued at $4.7 billion and $4.3 billion, respectively.
Analysts claim that Dresser-Rand revenues will reach $4.1 billion in 2015, according to Bloomberg, a 51 percent increase from last year and much higher than the 35 percent growth rate for other U.S. oil and gas service companies valued at more than $1 billion.
Dril-Quip is expected to see the same kind of growth. Its revenues are expected to jump 63 percent in the next three years. According to Bloomberg, sales will go up $1.2 billion in 2015, up from $733 million last year. This is better than 93 percent of similar companies.
While these two companies are the most likely candidates and probably the most immediate GE acquisitions, Chart Industries Inc. (NASDAQ: GTLS) is another one you should put on the list. The maker of natural gas storage equipment would complement GE very nicely and also offer similar multi-year growth as the other two.
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Oil and Gas Expansion
GE revealed in December that it eventually wants industrial divisions to account for 70 percent of its portfolio, largely held by oil and gas assets. In May, GE made public that it is considering a spin-off of its finance unit through an initial public offering.
No matter what angle you take from all this, you can’t deny that GE’s stance puts it directly in a growth business with its oil and gas unit.
Worldwide expenditures in this industry will reach a record $678 billion in 2013, according to Bloomberg, a 10 percent hike from 2012.
As GE continues to relinquish its traditional assets, more and more targets will open up, and we’ll be here as they do.
GE also has a large locomotive unit that could prove to be big as reliance on rail for transport becomes increasingly important to the oil and gas industry.
GE isn’t looking back on the past. And we’re not either. From here, the future looks bright.
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