Valuing GE Money

Posted Feb 27th 2008 5:15PM by Peter Cohan
Filed under: General Electric (GE), American Express (AXP), Bank of America (BAC)

I estimate that General Electric Company (NYSE: GE)'s GE Money segment is worth between $46 billion and $48.9 billion -- down 10.6% at the high end -- compared to last July's range of $29.6 billion to $54.7 billion.

GE Money provides financial services to consumers and retailers in 50 countries. GE Money offers private-label credit cards; personal loans; bank cards; auto loans and leases; mortgages; corporate travel and purchasing cards; debt consolidation; home equity loans; deposit and other savings products, and credit insurance.

GE Money had a great 2007. Its 2007 revenues and net earnings increased 26% and 31%, respectively, compared with 2006. Revenues in 2007 included $0.4 billion from acquisitions. Revenues in 2007 also increased $4.8 billion as a result of organic revenue growth ($3.5 billion) and the weaker U.S. dollar ($1.4 billion).

The increase in net earnings resulted primarily from core growth ($0.4 billion), higher securitization income ($0.4 billion) and the weaker U.S. dollar ($0.2 billion). Core growth included growth in lower-taxed earnings from global operations ($0.4 billion) and the sale of part of its Garanti investment ($0.2 billion), partially offset by declines in fair value of retained interests in securitizations ($0.1 billion) and lower results in the U.S. reflecting the effects of higher delinquencies.

Based on GE Money estimated net profit of $3.57 billion in 2007, here are the range of valuations based on the Price/Earnings ratios of the following peer companies -- two of which -- surprisingly -- have risen since last July:

Bank of America Corp. (NYSE: BAC) P/E: 12.9 (July: 9.9). $46.0 billion
Capital One Financial Corp. (NYSE: COF) P/E: 12.8 (July: 11.3). $45.7 billion
American Express Co. (NYSE: AXP) P/E: 13.7 (July: 18.3). $48.9 billion