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Sunday, May 22, 2011

GE Buy or Sale...

Part 1: BLUF = Bottom Line Up Front                                                  Recommendations : BUY
Inspite of the fluctuation in the market price and missing in earnings, I believe it is right time to invest in GE with a medium to long term investment plan for the following reasons :
Ø  GE has been around for a long time
Ø  GE is not focused on just one solitary industry
Ø  The growth rate and the dividend of GE is very good. (Conor, A.)

Part 2- Public Information
Of the twelve firms that were part of the original Dow Jones Industrial Average this is the only one that remains. It has been around for over 100 years with a market value of $300 billion and is the biggest industrial company in America.
General Electric is a conglomerate made of different industries producing aircraft engines, transportation and medical equipments, Kitchen and Laundry appliances, lighting, generators and turbines. Financial services including commercial, consumer, real estate and energy financial services. It also owns the original ‘Big Three’ television channel, NBC. The temporary situation of GE’s earning miss was mainly due to the bad financial endeavors under GE Capital during ‘housing bubble’. Consistent improvement can be seen in near future as the stimulus measures by the U.S. Federal Reserve & U.S. Government provide to reaccelerate the economy in the second half. GE with its typical discipline will continue to divest slower growing business units and invest in faster growing units. The companies will outperform with economic growth. GE has a long history of boosting its dividend payouts in the fourth quarter ensuring escalating yield year after year. (Marquez, H.)

Part Three- Financial Management Support
The only problem with General Electric currently is that it has lost some of its street credits by moving 40% of its credit line to GE Capital. Recently GE announced its plan to trim the dividend payout to $0.10 per share that focuses management to shore up the books rather than to appease the shareholders.(Regan, J.). The Dividend per share has increased from 1.15 in December 2007 to 1.24 in Dec. 2008. The Energy infrastructure revenues rose by 26%, or $7.9 billion in 2008 compared with $4.8 billion in 2007. The Price/Cash flow ratio of the company is 2.28 compared to its competitor, ‘Seimens AG’ with a ratio of 4.26. This depicts a better value of stock in near future as a lesser price/cash flow ratio shows a better value of stock. Most booking coming from industrial companies with a backlog of $51 billion in equipment and $121 billion in service agreement. Furthermore with the aid from President’s stimulus package in the Energy unit of GE, increased revenue is expected in the second half of the year.(Regan, J.). According to the Earnings trend analysis the earnings for the year 2007 and 2008 were 2.20 and 1.78 respectively. However, the estimated earnings for 2009, ie, 1.04 projected lower may be because of increased debt and interest expense. But overall the earning trend will be on the rise from the second half of the year with the boom in the energy sector of GE.


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