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A visitor looks at the GEnx engine for Boeing 787 dreamliner and 747-8 on the GE stand at the Paris International Air Show on June 21, 2011 at Le Bourget airport near Paris.


Similar to the giant U.S. economy that it reflects, General Electric Co. has garnered rising optimism during the last couple of months even as it struggles to grow.

Investors see better days ahead for the industrial giant, which produces everything from microwave ovens to nuclear reactors. But when the company posts fourth-quarter results before the market opens on Friday, the numbers are expected to fall short of the prior year's mediocre performance.

Analysts expect that revenue slid 2 per cent and profit fell 14 per cent in the three months ended Dec. 31. For the full year, the Street expects GE revenue to come in almost flat, but profit likely rose 16 per cent, thanks largely to disciplined cost controls.

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The outlook is brighter, however, for subsequent quarters. Analysts are forecasting earnings growth of 17 per cent on revenue growth of 2 per cent for this year. And for 2013, they see profit rising 13 per cent, on revenue growth of 5 per cent.

Expectations have risen in the past few months on the back of improving sentiment for the U.S. economy, growing strength inside some divisions – including GE Capital and the aviation unit – and upbeat comments from management. Last month, chief executive officer Jeff Immelt said GE operations in emerging markets should deliver low-double-digit growth this year. That was particularly welcome news given how European sales have come under pressure. The company derives more than half its business from overseas, with Europe and Asia its two most important international markets.

Mr. Immelt also credited the company's improving financial performance and strong cash flow for the decision to boost the quarterly dividend 13 per cent, to 17 cents (U.S.) a share. It was the fourth hike since the financial crisis caused the company to reduce its payout for the first time since the Great Depression.

GE shares now offer a dividend yield of 3.6 per cent, compared with an average of 2.4 per cent offered by S&P 500 companies. The stock is valued in line with the broader market, trading at 14.4 times trailing 12-month earnings.

The shares have climbed 30 per cent off their low in late November, and the surge has not caused any analysts to change their recommendations, which on the whole remain bullish.

But some options traders are betting that expectations have got ahead of themselves. The short interest ratio, which reflects the number of days it would take to cover all short positions based on average daily trading volume, has edged up to 1.4 from 1.1 over the past month.

For the last 12 months, the shares are up 8 per cent, which compares to a one-year gain of 10 per cent for rival Honeywell International Inc. and losses of 1 per cent and 16 per cent for United Technologies Corp. and Siemens AG , respectively.

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Among the barrage of numbers in GE's latest report, the market will focus on the operating profit margin, which had dipped to 13.7 per cent in the third quarter, from 16.5 per cent in the year-earlier period. Although GE reported in October that it had a massive backlog of orders worth $191-billion, analysts expressed concern that the company was winning much of that business by competing on price. Mr. Immelt indicated that margins would improve.

GE's energy unit has dragged on the company's overall growth, largely because of declining prices for wind turbines in the face of greater competition. Morningstar analyst Daniel Holland says the power infrastructure market eventually will become "the backbone for the firm's growth."

For now, however, growth is coming from the healthcare, aviation, transportation and financing units. The latter, known as GE Capital Services, is the company's biggest unit, responsible for about one-third of overall revenue and almost one-third of all profit.

GE Capital Services is expanding its traditional banking business, increasingly relying on individual savers to finance its commercial lending. Last month, GE agreed to buy $7.5-billion in deposits from MetLife Inc., the biggest life insurer in the United States. The deal will expand GE's deposit base to more than $30-billion, which in turn is meant to reduce the company's exposure to the financial markets.

This year, GE has more debt coming due than any other company in the United States, with $78.7-billion of bonds maturing in 2012. Although it lost its triple-A credit rating after it was forced to cut its dividend, GE still boasts a credit rating that matches the U.S. government and exceeds that of most banks.

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