It seems to be insanely cheap. Paying a 3.4% dividend and producing 10%+ earnings. It's PE is now less than 15. With a PE of 18-18.5 and earnings of $2.42 per share next year, that puts it in the $43.50 price range.
Most analysts are also touting a flight to safety (blue chips) next year. And, GE would seem to be near the top of the dividend-rich blue chip scene.
So, what gives?
Forget the political crap, would anyone care to provide some REAL insight into why GE is being pounded so heavily? Is it purely a debt issue? If so, I think it's overblown given GE's production and position overseas and in growht markets. Am I missing something?
Also, the American Funds have made it their top position. They are usually correct in their assessments.
Please reply with REAL input/opinions. For those of you frustrated with the lack of REAL discussion on this message board -- here's your chance.
My take is that there are a lot of high quality companies out there with better growth prospects than GE that are also trading around 15 times '08 estimates, such as Disney and Cisco and Marriott. GE's problem, if you want to call it that, is that it really can't grow much more than 10-11% annually due to its huge size. Finance has also become problematic (5% growth forecast in '08) as it has with all financial companies. They are triple A rated, but GE is getting bogged down seemingly everywhere except Infrastructure. I just think investors see a lot of good pure play (or cleaner, more understandable) companies trading at a comparable PE with better growth prospects. GE is going up over time with earnings, but that only translates into about $3.50 a year which doesn't excite many investors. Its big, boring, and doesn't move much in either direction.
GE currently appears to be a victim of negative sentiment regarding 1.) its GE Money segment (consumer sentiment is much lower in the wake of the coming slowdown/recession and potential write-downs), 2.) its industrial financing segment (potential write-downs, plus loss of sales due to tighter credit conditions and liquidity concerns), and 3.) its loss of advertising revenue that a slowdown/recession might bring to its perennial under-performing NBC segment. GE is probably a HOLD right now, but a well-run company with 3% dividend helps the medicine go down easier. Despite its high quality financial metrics GE's share pricing and total return has been rather weak in the past five years. I call it the Jack Welsh hangover, caused by an inflated amount of profits coming from the now discontinued insurance operations. Disclosure: I has owned shares for about two years.
The market doesn't like conglomerates, doesn't like companies that are hard to understand, doesn't like NBC, and positively loathes anything to do with finance. And GE has huge exposure to finance.
No one ever expects a downside surprise from GE, but they know there'll never be an upside surprise. And since GE never misses, some do not believe the numbers are real.
GE needs to decide whether or not it wants to be a conglomerate. If not, it should sell non-core operations like NBC and the finance side, just as it has already sold insurance and chemicals. I think those sales are a tell that it is de-conglomerating, just not as rapidly as many would like. In the short term, the share price depends on the market's treatment of financials.
GE is what it is and for the most part, the stock is held by institutions and employees. Yes, it trades 13 - 15 million shares a day, but always in a narrow range. Yes, it's recoverd from the low 20s after the bubble burst, but it's no where near it's old highs. Why? For my money, there's three reasons: It's management; NBC Universal holdings; and it's complexity. GE mamagement has been painfully slow to effect it's strategy; yes it's unloaded it's exposure and created Genworth. Ask yourself how you benefitted from that transaction; then ask yourself how you think GE management benefitted from that transaction. NBC Universal is another story; it's effectively a garbage dump of news and cable shows, hardly having any meaningful marketshare, employing a range of idiots from Matthews and Olberman, to Matt Lauer, and Joe Kernen. It doesn't matter what Immelt says about his commitment to NBC, this is a set of concrete blocks around the corporate neck of GE, and the sooner he sells it, the better. And lastly complexity; ask anyone to explain what makes up this company on the financial side and sit back and wait for your head to spin. This company has grown dramatically internationally, and it's hard for anyone to see where there are opportunities for strong growth beyond the buzzwords - ecoimagination. When you consider the big news stories that move the stock of other companies, year in and year out, and then ask yourself when the last time you heard anything from GE to dominate the news other than earnings announcements. Why? My opinion - Jeff Immelt is as poor a communication strategist as the company has ever had; you merely have to look at how Welch handled public perception of the company, he was the biggest cheerleader, good, bad, or indifferent.
Like many, I have been patient with the stock price. I want to believe in Jeff's approach to restructuring and redfining GE.
Does anyone see this thing turning positive anytime soon?
Is the large debt on the balance sheet a problem for a company the size o GE?
While I will be listing the Bears arguments for GE there are obviously Bull arguments also and both must be weighed against the price:
GE shares have been dogged by concerns over the sustainability and quality of its earnings growth.
Recent acquisitions have been pretty expensive; goodwill as a percentage of total assets has more than doubled during the last five years.
GE's turnaround efforts at its NBC Universal segment have been slow and its revenue and profit growth outlook is flat. Also, the FOX business channel could challenge CNBC's dominance.
GE's industrial operations' combined profit growth has been choppy; profit margins reduced to 14.1% in 2004 from 17.2% in 2002, before regaining to 15% in 2006. The cyclicality of many of its industrial businesses makes long-term profitability improvements difficult to achieve.
The amount of earnings growth the company gained from a decline in its effective tax rate and a decline in the provision for loan losses as a percentage of revenue--a trend that might not continue in future--raises concern about GE's earnings quality.