General Electric Co Valuation – February 2018 $GE

Company Profile (obtained from Marketwatch): General Electric Co. is a technology and financial services company that develops and manufactures products for the generation, transmission, distribution, control and utilization of electricity. Its products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products. The company operates through eight segments: Power, Oil & Gas, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital. The Power segment serves power generation, industrial, government and other customers worldwide with products and services related to energy production. The Oil & Gas segment supplies mission critical equipment for the global oil and gas industry, used in applications spanning the entire value chain from drilling and completion through production, liquefied natural gas and pipeline compression, pipeline inspection, and downstream processing in refineries and petrochemical plants. The Aviation segment products and services include jet engines, aerospace systems and equipment, replacement parts and repair and maintenance services for all categories of commercial aircraft; for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; for marine applications; and for executive and regional aircraft. The Healthcare segment products include diagnostic imaging systems such as magnetic resonance, computed tomography and positron emission Tomography scanners, X-ray, nuclear imaging, digital mammography and molecular imaging technologies. The Transportation segment engages in global technology and supplier to the railroad, mining, marine and drilling industries. The Appliances & Lighting segment products include major appliances and related services for products such as refrigerators, freezers, electric and gas ranges, cooktops, dishwashers, clothes washers and dryers, microwave ovens, room air conditioners, residential water systems for filtration, softening and heating, and hybrid water heaters. The GE Capital segment offers financial services and products worldwide for businesses of all sizes, services include commercial loans and leases, fleet management, financial programs, credit cards, personal loans and other financial services. The company was founded by Thomas A. Edison in 1878 and is headquartered in Boston, MA.

GE Chart

GE data by YCharts


Downloadable PDF version of this valuation:

ModernGraham Valuation of GE – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $125,658,498,015 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.03 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -68.18% Fail
6. Moderate PEmg Ratio PEmg < 20 48.84 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.96 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.03 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 27.07 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg $0.30
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $4.30
MG Value based on 0% Growth $2.52
Market Implied Growth Rate 20.17%
Current Price $14.49
% of Intrinsic Value N/A

General Electric Company does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.33 in 2014 to an estimated $0.3 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 20.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into General Electric Company revealed the company was trading above its Graham Number of $12.12. The company pays a dividend of $0.84 per share, for a yield of 5.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 48.84, which was above the industry average of 26.48. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.17.

General Electric Company scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.17
Graham Number $12.12
PEmg 48.84
Current Ratio 1.03
PB Ratio 1.96
Current Dividend $0.84
Dividend Yield 5.80%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $138,600,000,000
Total Current Liabilities $134,600,000,000
Long-Term Debt $108,265,000,000
Total Assets $377,900,000,000
Intangible Assets $104,200,000,000
Total Liabilities $313,600,000,000
Shares Outstanding (Diluted Average) 8,676,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.88
Dec2017 -$0.72
Dec2016 $0.89
Dec2015 -$0.62
Dec2014 $1.50
Dec2013 $1.27
Dec2012 $1.29
Dec2011 $1.23
Dec2010 $1.06
Dec2009 $1.01
Dec2008 $1.72
Dec2007 $2.17
Dec2006 $2.00
Dec2005 $1.57
Dec2004 $1.64
Dec2003 $1.51
Dec2002 $1.41
Dec2001 $1.37
Dec2000 $1.27
Dec1999 $1.07
Dec1998 $0.93

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.30
Dec2017 $0.16
Dec2016 $0.69
Dec2015 $0.70
Dec2014 $1.33
Dec2013 $1.22
Dec2012 $1.22
Dec2011 $1.27
Dec2010 $1.39
Dec2009 $1.60
Dec2008 $1.87
Dec2007 $1.89
Dec2006 $1.71
Dec2005 $1.54
Dec2004 $1.50
Dec2003 $1.39
Dec2002 $1.29

Recommended Reading:

Other ModernGraham posts about the company

5 Most Overvalued Dow Components – July 2015
5 Most Overvalued Dow Components – June 2015
5 Most Overvalued Dow Components – May 2015
5 Speculative and Overvalued Companies to Avoid – March 2015
5 Most Overvalued Dow Components – February 2015

Other ModernGraham posts about related companies

E I du Pont de Nemours & Co Valuation – August 2016 $DD
3M Company Valuation – August 2016 $MMM
General Electric Co Valuation – July 2016 $GE
Illinois Tool Works Inc Valuation – July 2016 $ITW
Raven Industries Inc Valuation – July 2016 $RAVN
E.I. du Pont de Nemours Valuation – February 2016 $DD
Honeywell International Inc Valuation – February 2016 $HON
3M Company Valuation – February 2016 Update $MMM
Raven Industries Inc Valuation – January 2016 Update $RAVN
Illinois Tool Works Inc Valuation – January 2016 Update $ITW


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.






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