Despite Donald Trump's negative approach to renewable energy saying that solar and wind energy is uneconomic and his plans to ramp up oil, gas, and coal production, the use of renewable energy will continue to grow considerably all over the world and even in the United States. This trend will benefit General Electric (GE) which is seeing an increased demand for its renewable energy products and services and could drive its stock higher.

GE's revenues from renewable energy have increased significantly in the last few quarters, as shown in the chart below. In fact, the full year 2016 renewable energy segment revenues of $9,033 million were up 44% from 2015 revenues and accounted for 7.3% of the company's total revenues for the year. Furthermore, the segment profit in 2016 of $576 million was 34% higher than the segment profit in the previous year.

Source: company's reports

In accordance with this trend, GE announced on January 19, a new major contract in collaboration with AGL Energy and the civil engineering construction company, CATCON, to develop and build a $450 million 200MW wind farm in western New South Wales, Australia. According to GE, the Silverton Wind Farm which will be the sixth largest wind farm in Australia will generate electricity to power the equivalent of about 140,000 Australian homes. The project will include 58 GE 3.4MW wind turbines, the largest in Australia, with rotors with a diameter of 130 meters.

In the announcement, Geoff Culbert, CEO, GE Australia & New Zealand said:

“We are proud to be working in collaboration with AGL and CATCON to implement world-leading renewable energy expertise on a project that will have a major impact on reducing Australia’s greenhouse gas emissions and accelerate the country towards its Renewable Energy Target. Not only is this project innovative in its technology, but it’s also a clear demonstration of how an innovative financing structure can be used to unlock investment in large-scale renewable energy projects.”

Fourth Quarter Results

On January 20, General Electric reported its fourth quarter 2016 financial results. Earnings per share were at $0.46 in line with expectations. GE's revenues of $33.1 billion for the quarter were slightly below the consensus estimate of $33.6 billion. The company showed significant earnings per share surprise in the previous five quarters, as shown in the table below.

In the report GE Chairman and CEO Jeff Immelt said:

"We executed on our 2016 goals and continued to drive growth across our businesses through the GE Store while investing in additive manufacturing and digital technology. We delivered $1.49 of earnings per share this year and 1% of organic growth. We reported $32.6 billion of free cash flow and dispositions and returned $30.5 billion to shareowners through dividends and buyback. We will continue to invest in the Industrial Internet to lead in productivity and performance for our customers in 2017."

The company achieved growth in the fourth quarter in orders and backlog. Orders increased 4% compared to the same quarter a year ago to $33.9 billion, and backlog grew 2% year over year to $321 billion.

Source: GE 4Q 2016 EARNINGS

General Electric Stock Performance

The GE stock has underperformed the market in the last few years. Year to date, the GE stock is down 5.9% while the S&P 500 index has increased 1.2%, and the Nasdaq Composite Index has gained 3.2%. Moreover, since the beginning of 2012, GE stock price has grown only 66.1%. In this period, the S&P 500 Index has increased 80.1%, and the Nasdaq Composite Index has risen 113.2%. According to TipRanks, the average target price of the top analysts is at $35.80, representing an upside of 20.3% from its January 23 close price of $29.75, which appears reasonable, in my opinion.

Valuation

According to its valuation metrics, GE's stock is not cheap. However, considering its estimated high EPS growth rate for the next five years of 12%, GE's stock is attractive, in my opinion. The trailing P/E is at 25.68, and the forward P/E is at 15.49. The price to sales ratio is at 2.13, and the price to book value is at 3.21. Furthermore, the price to cash flow ratio is at 18.78, the Enterprise Value/EBITDA ratio is at 20.07, and the PEG ratio at 1.54.

Dividend and Share Repurchase

Investors in GE stock can also enjoy the generous dividend currently yielding 3.23%. The payout ratio is at 92%, and the annual rate of dividend growth over the past three years was high at 9.5%, and over the past five years was very high at 14.9%.

GE had cut its dividend payment in the years 2009, 2010, as a result, of the 2008-2009 global financial crisis, but had started to increase its dividend payment again in 2011. The company returned $30.5 billion in cash to shareowners in 2016, $22 billion of which through buyback.

Conclusion

The use of renewable energy will continue to grow considerably all over the world and even in the United States. This trend will benefit GE which is seeing an increased demand for its renewable energy products and services and could drive its stock higher. The average target price of the top analysts is at $35.80, representing an upside of 20.3% from its January 23 close price of $29.75, which appears reasonable, in my opinion.