The New York Times reports that General Electric Co. (NYSE: GE) sponsored a webcast yesterday with its CEO, Jeff Immelt, to answer questions submitted by the general public. Immelt denied that its NBC Universal unit was for sale while answering questions from Carl Quintanilla and a co-host of the Squawk Box program on CNBC, and Chrystia Freedland, the United States managing editor of The Financial Times.
A few disclosures are in order: GE invited me to participate in this webcast but I had a prior commitment. I met last July with GE's CFO -- where he said that NBC Universal was worth between $40 billion and $45 billion. I've appeared on CNBC with Quintanilla, most recently as guest host of Squawk Box. And I own GE stock and am not a happy camper since it's trading 13% below where it was on September 10, 2001 when Immelt took over. The S&P 500 has risen 21% since then.
Is Immelt right that GE is undervalued? I took a look at that question and concluded that it was slightly overvalued on February 27th. Specifically, I calculated a range of breakup values for GE which were between 11.1% and 1.5% less below GE's current market capitalization. I could be wrong about that analysis since I was compounding assumptions on assumptions and had no guidance on the analysis from GE.
While I like the effort to reach out to individual investors, I think the key opportunity to boost GE stock is to increase its exposure to building infrastructure in emerging markets such as China and India. These are profitable growing markets where GE has a competitive advantage. Unfortunately, its current bets are so spread out that many investors probably view the stock as one that will at best grow at the rate of the overall economy.
And with economists increasingly concluding that the economy is in a recession, it will be hard to attract new investor interest in a stock that investors expect to be exposed to that negative economic growth. And if GE's earnings grow 10.9% by 2009, it is pricey at a Price/Earnings to Growth (PEG) ratio of 1.4 on a P/E of 15.5.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He owns GE shares.
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Reader Comments (Page 1 of 1)
3-14-2008 @ 1:11PM
gumby said...
All of your bullshit talk would not have told had I not owned GE stock... It would have been higher ... It is just your cheap inside the beltway mentality.... What I dont understand is why ?? What is your beef??
3-17-2008 @ 10:10AM
Don Phillips said...
As I am a holder of several thousands shares,I am
concerned about the direction GE is going. I think
it is time for Mr. Immelt to throw the towel in and
if possible bring Jack back or some else who can
lead this great company back to the succeses that
made it #1 and one of the most envied companys
in the world.
3-18-2008 @ 7:52PM
erbjl said...
I don't know what you used in your analysis to compute GE's value as the sum of it's parts. As one who owns several thousand shares of GE and who worked most of my career in GE, I would like to point out several facts:
- GE has always been worth more than the sum of its parts. (That is why it never broke up.)
- GE has INCREASED its earnings every year for more than 30 years.
- GE has increased its dividend every year for more than 30 years and has never missed a quarter.
- GE is the only company continuously listed in the Dow 30 from its inception.
- GE has a long legacy of training the corporate leaders in many other major companies of America.
- GE is currently positioned to benefit greately from many developing technologies (such as wind power generation), in the future.
- In spite of isolated cases to the contrary, GE is one of the most ethically responsible companies in the world (I say this from inside exerience).
- GE has NEVER sold for as low as 15 times earnings per share (as it recently has) for more than 30 years. In year 2000 it was selling for over 50 times earnings. So why is it overpriced now? Mr. Immelt cannot be faulted for what he has done. He had a hard act to follow, and has, for the most part, made the right moves.
The problem seems to be that "analysts don't understand GE" or that GE's business model is out of style with modern analysts. (Maybe they don't know everything).
I believe that the stupidity of such argurements will become apparent in due time, as GE continues to survive its critics, and will continue to prove the pundits wrong by outperforming the general economy.
4-11-2008 @ 11:37AM
John Brougher said...
I own several thousand shares of GE so I follow it everyday. The comments above are all correct for the most part, but GE should have have been a market leader like it was when Jack was there. I consider my money as dead since 2000/1 when Jack left. I don't understand how Imnelt has lasted as long as he has. The old rule in GE was that if a manager missed his target he had a discussion with his boss and required to give an estimate when his section would achieve it goals. If he missed again, he was told to look for another job. I think it is time for Jeff to be told to look for another job. GE is a good company, but they have lost their leadership.