BUSINESS
General Electric Company operates as a high-tech industrial company in Europe, China, Asia, the Americas, the Middle East, and Africa. It operates through four segments: Power, Renewable Energy, Aviation, and Healthcare segments. The Power segment offers gas and steam turbines, full balance of plant, upgrade, and service solutions, as well as data-leveraging software for power generation, industrial, government, and other customers. The Renewables segment provides various solutions for its customers through combining onshore and offshore wind, blade manufacturing, grid solutions, hydro, storage, hybrid renewables, and digital services offerings. The Aviation segment designs and produces commercial and military aircraft engines, integrated engine components, electric power, and mechanical aircraft systems; and provides aftermarket services.
INVESTMENT RATING
With future capital returns forecasted to be above the cost of capital, GE is expected to continue to be a major Value Builder.
General Electric has a current Value Trend Rating of C (Low Neutral).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. General Electric has a very low Appreciation Score of 6 but a very high Power Rating of 87, with the Low Neutral Value Trend Rating the result.
General Electric’s stock is selling significantly above targeted value. The current stock price of $156.52 compares to targeted value 12 months forward of $50.
General Electric’s very low appreciation potential results in an appreciation score of 6 (94% of the universe has greater appreciation potential.)
General Electric has a Power Rating of 87. (GE’s very high Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 13% of companies in the universe.)
Factors contributing to this very high Power Rating include: recent price action has been extremely favorable; and the Conglomerates comparison group is in a strong phase currently. An offsetting factor is GE’s earnings estimates have fallen very significantly in recent months.
INVESTMENT PROFILE
GE’s financial strength is low. Financial strength rating is 20.
Relative to the S&P 500 Composite, General Electric Co has slightly more Growth than Value characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that GE is higher risk. Relative weaknesses include: low historical profitability, low financial strength, and high earnings variability. GE’s valuation is high: low dividend yield, high P/E ratio, and high price/book ratio. GE has unusually high market capitalization.
CURRENT SIGNALS
General Electric’s current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; and rising leverage.
General Electric’s current technical position is very strong. The stock price is in a 14.9 month up move. The stock has appreciated 144.0% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
General Electric Co (NYSE: GE). Important positive changes in investment behavior have recently occurred: positive upside/downside volume developed.
General Electric Co (NYSE: GE). Notable negative changes in fundamentals have recently occurred. Negative developments: the consensus estimate for December, 2024 decreased significantly, significant quarterly earnings deceleration occurred, and the consensus estimate for December, 2025 decreased significantly. Positive development: significant quarterly sales acceleration occurred.
The stock is currently rated C.
On 4/8/24, General Electric Co (NYSE: GE) stock rose slightly by 0.1%, closing at $156.52. Moreover, this advance was accompanied by above average trading volume at 130% of normal. Relative to the market the stock has been exceptionally strong over the last nine months but has declined -10.8% during the last week.
CASH FLOW
In 2023, General Electric experienced a slight decrease in cash of -$2,198 million (-9%). Sources of cash were slightly lower than uses. Cash generated from 2023 EBITDA totaled +$6,358 million. Non-operating sources contributed +$7,068 million (+111% of EBITDA). Cash taxes consumed -$1,162 million (-18% of EBITDA). Withdrawal of investment from the business totaled +$16,517 million (+260% of EBITDA). On a net basis, debt investors withdrew -$12,924 million (-203% of EBITDA) while equity investors received -$18,055 million (-284% of EBITDA).
General Electric’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the General Electric Peer Group. (Since 2021 Non-operating Income, %EBITDA has accelerated very sharply.) In most years, General Electric was in the top quartile and lower quartile. Currently, General Electric is upper quartile at +111% of EBITDA (+$7,068 million).
General Electric’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the General Electric Peer Group as well. (Since 2020 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, General Electric was in the top quartile and second quartile. Currently, General Electric is at the lower quartile at -18% of EBITDA (-$1,162 million).
General Electric’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the General Electric Peer Group. In most years, General Electric was in the top quartile. Currently, General Electric is upper quartile at +260% of EBITDA (+$16,517 million).
General Electric’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the General Electric Peer Group. In most years, General Electric was in the lower quartile. Currently, General Electric is lower quartile at -203% of EBITDA (-$12,924 million).
General Electric’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the General Electric Peer Group. (Since 2021 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, General Electric was in the lower quartile and top quartile. Currently, General Electric is lower quartile at -284% of EBITDA (-$18,055 million).
General Electric’s Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the General Electric Peer Group. (Since 2021 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, General Electric was in the lower quartile and top quartile. Currently, General Electric is lower quartile at -35% of EBITDA (-$2,198 million).
General Electric’s Cash, %Revenue has suffered a strong overall downtrend over the period. This downtrend was accompanied by stability for the General Electric Peer Group. (Since 2020 Cash, %Revenue has acccelerated.) In most years, General Electric was in the top quartile. Currently, General Electric is at the upper quartile at +33%.
PROFITABILITY
General Electric’s return on equity has improved very significantly since 2014. The current level is 33.1% versus the high of 12.0% and the low of -8.5%.
A major analytical focus for GE is a very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors.
The productivity of General Electric’s assets rose over the full period 2014-2023: asset turnover has enjoyed a very strong overall uptrend.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
General Electric’s return on equity is upper quartile (33.1%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is at the upper quartile (6.3%) reflecting asset turnover that is at median (0.42X) and substantially above median pretax margin (15.0%).
Tax “keep” rate (income tax management) is at the upper quartile (89.0%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is above median (5.96X).
GROWTH RATES
There are no significant differences between General Electric’s longer term growth and growth in recent years.
General Electric’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been -6.8% per year.
Total asset growth has been -11.8% per year.
Annual E.P.S. growth has been -6.4% per year.
Equity growth has been -12.7% per year.
General Electric’s consensus growth rate forecast (average of Wall Street analysts) is 32.7% — substantially above the average of the historical growth measures.
Relative to the General Electric Peer Group, General Electric’s historical growth measures are generally lower quartile. E.P.S. growth (-6.4%) has been substantially below median. Total asset growth (-11.8%) has been lower quartile. Revenue growth (-6.8%) has been lower quartile. Equity growth (-12.7%) has been lower quartile.
In total contrast, consensus growth forecast (32.7%) is upper quartile.
PRICE HISTORY
Over the full time period, General Electric’s stock price performance has been significantly below market. Between June, 2013 and April, 2024, General Electric’s stock price fell -16%; relative to the market, this was a -74% loss. Significant price moves during the period: 1) September, 2022 – April, 2024: +153%; 2) July, 2020 – May, 2021: +132%; 3) January, 2020 – July, 2020: -51%; and 4) March, 2016 – November, 2018: -76%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 85.7% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of 85.7% is upper quartile relative to General Electric Co Peer Group.
Current 5-year total return performance of 18.7% is upper quartile relative to the S&P 500 Composite.
Through February, 2024, with upper quartile current 5-year total return of 18.7% relative to S&P 500 Composite, General Electric’s total return performance is upper quartile relative to General Electric Co Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, GE’s overall valuation is normal. The highest factor, the price/equity ratio, is near the upper quartile. Price/earnings ratio is below median. Ratio of enterprise value/revenue is below median. Ratio of enterprise value/earnings before interest and taxes is near the lower quartile. The lowest factor, the ratio of enterprise value/assets, is below median.
Relative to General Electric Peer Group, GE’s overall valuation is high. The highest factor, the price/equity ratio, is upper quartile. Ratio of enterprise value/assets is upper quartile. Ratio of enterprise value/revenue is above median. Price/earnings ratio is slightly above median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is at median.
General Electric has a large value gap compared to the median. For GE to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 2.86X to 2.42X. If GE’s ratio of enterprise value/revenue were to fall to 2.42X, its stock price would be lower by $-27 to $129.
For GE to achieve upper quartile valuation relative to the General Electric Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.86X to 4.11X. If GE’s ratio of enterprise value/revenue were to rise to 4.11X, its stock price would increase by $78 from the current level of $157.
VALUE TARGETS
With future capital returns forecasted to be above the cost of capital, GE is expected to continue to be a major Value Builder.
General Electric’s current Price Target of $44 represents a -72% change from the current price of $156.52.
General Electric’s very low appreciation potential results in an appreciation score of 6 (94% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 6, the high Power Rating of 87 results in an Value Trend Rating of C.
General Electric’s current Price Target is $44 (-45% from the 2023 Target of $81 and -72% from the 04/08/24 price of $156.52). This dramatic fall in the Target is the result of a -25% decrease in the equity base and a -27% decrease in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a huge positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted increase in cost of equity has a very large negative impact.
PTR’s return on equity forecast is 26.1% — substantially above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2015 and 2023. The current forecast is significantly above the 2021 low of 5%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth erratic between 2015 and 2023. The current forecast is steady at the 2015 peak of 0%.
PTR’s cost of equity forecast is 11.5% — above recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is significantly above the 2021 low of 1.0%.
At General Electric’s current price of $156.52, investors are placing a negative value of $-27 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 7.8% versus a cost of equity of 2.5%.
PTR’s 2025 Price Target of $44 is based on these forecasts and reflects an estimated value of existing assets of $124 and a value of future investments of $-80.
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