Why You Should Plug Into General Electric

Tickers in this article: DHR GE HON

NEW YORK (TheStreet) -- General Electric has been in the headlines recently because some analysts contend the company needs a major overhaul.

Chief Executive Jeffrey Immelt, who has led GE since since 2001, may step down sooner than his expected 20-year tenure and GE's board is now considering shortening the standard term for its CEOs, according to The Wall Street Journal.

But for now, it is still Immelt's show to run. And following GE's strong first-quarter earnings report, which shows a meaningful outperformance over conglomerates such as Honeywell and Danaher , investors would be wise to plug into General Electric's new direction. The company is demonstrating that "boring" is not the enemy of profitability.

On Thursday, General Electric posted a 12% rise in overall industrial profits. The company's strength in businesses such as jet engines, gas turbines and oil industry equipment offset weakness in areas such as transportation and health care. Excluding one-time items, the company delivered operating earnings of 33 cents per share, topping average estimates of 32 cents.

Overall revenue fell 2% to $34.18 billion, slightly missing estimates of $34.36 billion. The big story, however, was the progress management is making in transitioning the business from its financial unit to establish more of a focus on GE's traditional manufacturing businesses. The latter segment, which posted 8% revenue growth, is by far GE's strongest.

In fact, the company posted 14% revenue growth in both aviation and power/water segments, its two largest industrial businesses. GE's oil and gas division posted a 27% revenue increase. As strong as these numbers appear, I don't believe management, particularly Immelt, has gotten enough credit.

Given the breadth of GE's end-markets, which it has achieved from various acquisitions, there have been complaints about GE's weak organic growth. This is the metric that measures a company's operational performance using only internal resources and excluding events like acquisitions.

For the first quarter, General Electric delivered organic growth of 8%, twice the average estimate, which was for growth of 4%. What's more, that the company posted a profit margin of 13.4%, which expanded by 50 basis points, suggesting that management's decision to focus on its industrial segments is paying off.