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.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|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
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||$4.30|
|MG Value based on 0% Growth||$2.52|
|Market Implied Growth Rate||20.17%|
|% 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|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
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|
|Shares Outstanding (Diluted Average)||8,676,000,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.88|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$0.30|
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|
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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.