After looking over the company’s fundamentals, General Electric qualifies for both the Enterprising Investor and the even more conservative Defensive Investor. Both investor types should be concerned with the lack of earnings growth, but those concerns are not great enough on their own to turn away investors before considering the intrinsic value. As a result, all value investors should feel comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
Estimating the intrinsic value requires examining the company’s earnings history. General Electric has seen its EPSmg (normalized earnings) stay relatively flat from $1.39 in 2010 to only an estimated $1.38 for 2014. This demonstrated level of earnings growth does not support the market’s implied estimate of 5.2% earnings growth. This is particularly true because the company has not actually grown its earnings at all over the last few years, so there would need to be a significant change in the company’s earnings in order to justify the market’s current long-term estimates. As a result, our valuation model returns an estimate of intrinsic value below the market price at this time, and the company appears to be overvalued by the market.
Be sure to check out previous ModernGraham valuations of General Electric for greater perspective!
Disclaimer: Â The author did not hold aÂ position in General Electric Company (GE)Â orÂ in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. Â Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.