With shares of General Electric (NYSE:GE) trading at around $23.52, is GE an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
GE is a unique story. For instance, many companies throughout the broader market saw consistently increasing revenue from 2009 to 2011 and then suffered revenue declines in 2012. GE, on the other hand, saw revenue declines from 2009 to 2011 and then increasing revenue in 2012. Does this make GE one of the best plays going forward? Does it also make GE one of the safest plays if the market suffers a steep correction at some point over the next few years?
There are no definitive answers to the two questions above. However, GE is certainly headed in the right direction. What wasn’t mentioned above is that EPS has improved on an annual basis for three consecutive years. EPS also improved 16.20 percent last quarter on a year-over-year basis. It’s well known that GE focuses on the bottom line. This should be good news for investors going forward.
Another potential positive is that there have been two insider purchases over the past six months. These weren’t large purchases compared to what you sometimes see, but considering very few insiders are buying stock in this environment, it should be noted. On April 2013, William G. Beattie purchased 10,000 shares at $21.80, which had a cost of $218,000. It doesn’t matter how much wealth someone has accumulated. An insider purchase with a cost of $218,000 is far from an attempt at manipulation. This move was made in anticipation of stock price appreciation. Considering the stock is now trading at $23.52, it was a wise move. On October 25, 2012, John Joseph Brennan purchased 5,000 shares at $21.20, which had a cost of $106,000. Once again, this move was made with conviction, and it has paid off thus far. The ultimate point here is that if insiders are confident in its company’s future prospects, then it’s a company that’s worth at least some consideration for an investment.
Sticking with the insider theme, according to Glassdoor.com, employees have rated their employer a 3.6 of 5, and 78 percent of employees would recommend the company to a friend. These numbers are above average, which indicates a strong company culture. An impressive 81 percent of employees approve of CEO Jeffrey R. Immelt. Even outsiders, such as analysts think there’s a lot of promise, which is indicated by their ratings: 11 Buy, 6 Hold, 0 sell.
GE has divested many non-core assets over the past several years. Capital has been put toward better-performing operations. GE is highly diversified, and a lot of attention has been given to energy, but let’s take a look at GE Healthcare for a moment, which made up for 12.3 percent of revenue in Q1:
- Acquired Transactional Business of Unisys Medical Technologies (diagnostic imaging products and services provider)
- Developing hospital robot system to sort and sterilize surgical tools
- Designing software that will help hospitals build connected operations and reduce patient wait times
GE Healthcare has set three goals:
- Improve management of hospital operations
- Increase clinical effectiveness
- Optimize care
GE Healthcare plans on investing $2 billion in software over the next five years.
GE as a whole is incredibly diversified. Below are the segments in which it operates:
- Power & Water
- Oil & Gas
- Energy Management
- Home & Business Solutions
- GE Capital
As an example of GE’s ongoing goal of diversification and determination to grow, it’s getting in one the ground floor in Myanmar, which has been made possible thanks to easing sanctions. In Myanmar, blackouts are common, telecommunication is in its infant stages, and the drinking water is polluted. GE is capable of fixing some, if not all, of these problems. GE estimates that Myanmar revenue has the potential to reach $550 million within the next five to six years. GE has already supplied medical equipment to hospitals and turbines to power generators.
As far as fundamentals go, GE is trading at 17 times earnings whereas Phillips (NYSE:PHG) is trading at 98 times earnings and Siemens (NYSE:SI) is trading at 16 times earnings. On the surface, this might make Siemens look the most appealing of the three. However, GE has a profit margin of 9.71 percent and Siemens has a profit margin of 5.69 percent (Phillips sports a profit margin of just 0.83 percent). In regards to dividend yield, GE is also the most impressive of the three. GE currently yields 3.20 percent whereas Phillips yields 2.90 percent and Siemens yields 2.80 percent. It should also be noted that GE has a large operation cash flow position of $29.48 billion. Yet another important point is that the short position on GE is just 0.90 percent. When shorts don’t want to have anything to do with a stock, it often indicates a strong company with good future potential.
Let’s take a look at some important numbers prior to forming an opinion on this stock.
T = Technicals Are Strong
GE has been a steady performer over the past several years.
|1 Month||Year-To-Date||1 Year||3 Year|
At $23.52, GE is trading above its averages.
E = Equity to Debt Ratio Is Weak
The debt-to-equity ratio for GE is weaker than the industry average of 1.10. However, GE has been taking advantage of the low interest rate environment. There are no serious debt concerns as GE should be able to pay off debt if necessary.
E = Earnings Have Been Steady
Earnings have consistently improved on an annual basis. Revenue improved last year after sever years of declines.
|Revenue ($) in millions||182,515||156,783||150,211||147,300||147,359|
|Diluted EPS ($)||1.72||1.01||1.06||1.23||1.29|
Looking at the last quarter on a year-over-year basis, revenue declined 3.30 percent and earnings improved 16.20 percent.
|Quarter||Mar. 31, 2012||Jun. 30, 2012||Sep. 30, 2012||Dec. 31, 2012||Mar. 31, 2013|
|Revenue ($) in millions||35,182||36,501||36,349||39,327||35,010|
|Diluted EPS ($)||0.29||0.29||0.33||0.38||0.34|
Now let’s take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
GE serves over 100 million customers in more than 160 countries. Leadership is strong, diversification is superb, innovation is constant, and the 3.20 percent yield is a nice bonus.
GE is an OUTPERFORM.
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All content posted should not be considered professional advice. Please do your own research and consult with a professional financial advisor before making any investment decisions. I don’t have any positions in this stock.