GE predicts up to 15 percent rise in 2016 operating income

By Alwyn Scott and Sudarshan Varadhan

(Reuters) - General Electric Co predicted on Wednesday a double-digit rise in operating earnings in 2016 to between $1.45 and $1.55 a share and said it would return about $26 billion to shareholders, sending its stock up sharply.

The new target is up as much as 14.8 percent from 2015 targets of $1.28 to $1.35 a share, and is in line with analyst estimates of about $1.51 for next year. The company returned $32 billion in 2015.

Sales are expected to rise 2 percent to 4 percent.

GE said it expected double-digit growth in operating profit at its power and energy management businesses, boosted by the acquisition of Alstom SA , and single- to double-digit growth in its aviation division, which makes aircraft engines.

The oil and gas unit, which makes drills compressors and other equipment, would see a double-digit decline, and transportation would see a single-digit decline.

The maker of power turbines, aircraft engines, medical equipment, lighting and other products is going to generate $165 billion in cash from 2016 to 2018, and $30 billion of it has not yet been allocated.

"It's going to be very intelligently reallocated to generate shareholder value," Chief Executive Jeff Immelt told investors in New York on Wednesday.

The presentation contained "no big surprises in the 2016 outlook," RBC analyst Deane Dray wrote in a note. "We expect investors to consider this to be positive news."

GE shares were up 2.18 percent at $30.98 on the New York Stock Exchange, the biggest gainer in the Dow Jones Industrial Average, and their highest level since the 2008 financial crisis.

Immelt said GE did not plan major changes to its portfolio after announcing a major restructuring last April that has sent shares up more than 20 percent.

Instead, it will focus on increasing sales and improving profit margins and cutting costs across its businesses, while developing more digital industrial products and software.

The company has not "done as good a job as we should be doing" to reduce costs and improve margins among its suppliers, Immelt said, and aims to increase GE's gross margins by 50 basis points, or 100ths of a percentage point, a year.

"We're 300 basis points below what I consider to be best-in- class performance," Immelt said. "That gives us the headroom to continue pushing the margin up."

(Reporting by Alwyn Scott in Seattle and Sudarshan Varadhan in Bengaluru; Editing by Alan Crosby and Peter Cooney)