General Electric Company (NYSE: GE) missed by a penny. But a look behind its corporate veil reveals a company that is not getting the so-called benefits of diversification. Instead, the great performance of one of its businesses is being overwhelmed by all the other businesses which are shrinking. My concern is what happens if that one business also takes a dive.

GE net income fell 44% to $3.65 billion and its earnings per share (EPS) from continuing operations was 36 cents -- analysts had expected 37. Here's the bad news:

• GE's financial-services business, GE Capital, made a profit of $383 million -- an 88% drop while its revenues fell 18%. Its CNBC cable channel reported that it would cut 7,000 jobs and save $2 billion.
  
• GE's consumer and industrial business suffered an 86% earnings decline as revenue fell 17%
• GE's television and movie network. NBC Universal suffered a 6.3% earnings decline while revenue slid 2.7% as declines at local stations -- presumably suffering from weak advertising demand -- were partially offset by strong cable earnings

CNNMoney reports that General Electric Co. (NYSE: GE) is selling its appliance business. Goldman Sachs Group (NYSE: GS) is running the auction for this maker of refrigerators, microwaves and dishwashers and expects to receive between $5 billion and $8 billion for this $7 billion division of GE's $17.7 billion (2007 revenues) Industrial business unit.

I have been advocating that GE shed its ancillary businesses and this is one that makes sense to sell. I have taught several cases on the appliance industry and one of them highlights the many problems that GE's Appliance business suffered from in the 1990s thanks to the growing bargaining power of mass merchandisers, significant competition from Chinese manufacturers, and some internally inflicted wounds.

If GE Appliances was valued at the same Price/Sales ratio as Whirlpool (NYSE: WHR) -- 0.3 -- it would fetch $3.5 billion. The appliance industry average price/sales ratio is 0.7 -- which would yield GE $4.9 billion. So it looks like GE believes its appliance business is worth well more than the average appliance industry competitor. I applaud the idea of selling GE Appliances but the real gem of GE is its infrastructure business which is capitalizing on the growth of developing countries like China and India.

After posting a disastrous first quarter. General Electric Company (NYSE: GE) Chief Executive Jeffrey Immelt is resisting calls from Wall Street to break up the conglomerate.

"There are more reviews and intensity, but no real change to the strategy,'' Immelt said told Bloomberg News. ``The strategy remains intact.''

Really? Shares of the Fairfield, Conn.-based company have slumped about 13% this year. The stock had its biggest fall in 20 years after reporting disappointing results. Immelt, though, either is oblivious or cool under fire. I am not sure which.

General Electric (NYSE: GE) not only disappointed Wall Street investors this past Friday with its horrible results, but shocked investors as CEO Jeffrey Immelt gave the "all is alright" signal in mid-March. He should resign as he has had nearly 7 years to grow this once great company.

GE should also bite the bullet and spin off several segments into separately traded companies. I wrote about this extensively last year for AOL, but now the rationale is abundantly clear. This company--a major conglomerate--cannot deliver decent shareholder returns. Immelt took the reigns of GE on September 7,2001 when the stock was at $40. Nearly 7 years later the shares are at $32 and barely holding on. I find it amusing that some "value" investors think GE is interesting at this level. These were the same investors that found GE interesting and a value-play at $38 last year.

The problem with GE is not that it's too big: the problem is it is too complex. The largest industrial company in the world now is Exxon Mobil (NYSE: XOM) with expected revenues this year of $550 billion. This company however is strictly in the energy sector--it's measurable and quantifiable. GE is a mish-mash of businesses, from light bulbs to jet engines to appliances to consumer loans, whereby some segments are doing well and others horribly. How does any analyst assign a proper PE ratio expectation?

One segment, the infrastructure division grew its revenues by an admirable 23% this past March quarter and its profits by 17%. With this kind of growth and visibility into the next 18-24 months on revenues because of contractual commitments, this division alone could command a 25 + PE ratio. GE as a whole is now trading at 14 X 2008 EPS estimates of $2.20-2.30.

The GE Financial segment was woeful and provided the negative surprise. This segment on its own would trade at a PE ratio of between 9-11 times. The NBC-Universal division showed only 3% year-over-year growth, but cash flowed very well. This segment should command a 15-17 PE multiple.

General Electric Company (NYSE: GE)'s Healthcare segment is worth between $18.5 billion and $23.0 billion down 30% at the low end from the July value of $24.1 billion and $59.1 billion, according to my calculations.

GE Healthcare manufactures, sells and services medical equipment including equipment for magnetic resonance (MR), computed tomography (CT), positron emission tomography (PET) imaging, x-ray, patient monitoring, diagnostic cardiology, nuclear imaging, ultrasound, bone densitometry, anesthesiology and oxygen therapy, neonatal and critical care, and therapy.

GE Healthcare had a fair 2007. Its revenues rose 3% to $17.0 billion in 2007 as the effects of the weaker U.S. dollar ($0.5 billion) and higher volume ($0.4 billion) more than offset lower prices ($0.5 billion). Increased sales in the international diagnostic imaging, clinical systems and life sciences businesses were partially offset by price pressures on U.S. equipment sales and lower sales of surgical imaging equipment resulting from regulatory suspensions of equipment shipments.

Last July I met with General Electric Company (NYSE: GE) CFO Keith Sherin to discuss GE's performance and prospects. After an extensive analysis, I concluded that GE was not grossly undervalued in the stock market relative to my estimate of the breakup value of its component parts. Seven months later, I've reached a different conclusion -- if one were to break up GE now, its pieces would fetch less than its current market value.

In the last seven months, GE's market capitalization has fallen 15% from $399 billion to $339 billion. But GE made more money than I thought it would. When I estimated how much profit its business units would earn for 2007 in July, I had half a year's segment profit and I guessed that the year's total would be $21.6 billion. But the actual 2007 segment profit total was $24.1 billion -- which I calculated by assuming each segment paid a 17% tax rate on its profit.

Meanwhile the market has decided to assign lower values to GE's various businesses. I calculated that the weighted average Price/Earnings (PE) ratio of GE's business last July was 19.92 and now it's down to 17.62. This leads me to a range of breakup values for GE which are between 11.1% and 1.5% less below GE's current market capitalization. At the high end, I estimated that GE's businesses could be worth $334 billion and at the low end -- $301.3 billion. How did I get there?

General Electric Co. (NYSE: GE) today gave a bullish outlook for 2007 helped by growth in energy, healthcare and infrastructure.

Revenue will be $175 billion this year, with a profit of $23 billion, according to a Dow Jones report. That's better than the $171.6 billion average consensus estimate expected by analysts surveyed by Thomson Financial. Chief Executive Jeffrey Immelt crowed on his company's CNBC network that "global growth is really substantial now." Like other CEOs, Immelt sees the housing market as "tough," which may hurt some GE businesses such as appliances.

Immelt dismissed talk on Wall Street calling for the conglomerate to dump its NBC Universal media and entertainment business, pointing to its improving performance. "I am all about running NBC Universal for the long-term," he said.

General Electric Company's (NYSE: GE) Healthcare segment is worth between $24.1 billion and $59.1 billion, according to my calculations.

GE Healthcare, which constituted 10.1%, 10.2% and 10.0% of GE's consolidated revenues in 2006, 2005 and 2004, respectively, manufactures, sells and services medical equipment including equipment for magnetic resonance (MR), computed tomography (CT), positron emission tomography (PET) imaging, x-ray, patient monitoring, diagnostic cardiology, nuclear imaging, ultrasound, bone densitometry, anesthesiology and oxygen therapy, neonatal and critical care, and therapy.

I think GE Healthcare is a mixed bag for GE. Its technology is excellent and it has good relationships with those in the health care community. However, its revenues shrank because of regulatory problems -- the federal government cut reimbursements to nonhospital imaging centers, which bought less equipment from GE. I am wondering whether such regulatory challenges will impede GE Healthcare's growth in the future -- or whether new products can help revive the growth.

Assuming that GE Healthcare generates net income of $2.2 billion in 2007, here are the range of valuations based on the Price/Earnings ratios of the following peer companies:

• Siemens AG (NYSE: SI) P/E: 27.4. $59.1 billion
• Koninklijke Philips Electronics (NYSE: PHG) P/E: 11.1. $24.1 billion

This is a very wide range of valuations and I am not particularly comfortable with this result so if you have any suggestions, please comment.

Conclusion: Does GE trade at a conglomerate discount?

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He owns General Electric shares and has no financial interest in the other securities mentioned in this post.

In yesterday's lunch with General Electric Co. (NYSE: GE) CFO Keith Sherin, the discussion addressed a wide variety of issues regarding the way GE thinks about managing its portfolio of businesses. My overall conclusion is that GE has a rigorous process for deciding what to keep and what to sell but as an investor I wish it was more transparent about how it makes those decisions.

Here are some of the nuggets of insight about GE which I found particularly interesting:

• At the beginning of current CEO Jeff Immelt's reign, GE was trading at a Price/Earnings ratio of 40 -- it now trades at roughly half that level
• GE goes through an annual process of evaluating each of its businesses to assess whether to keep or sell them. In so doing, GE analyzes the profit potential of the industry, GE's competitive position, whether GE is "the best steward" to run the business in a "shareholder-friendly" way, whether the business can achieve its goals, and whether there are opportunities to invest capital at high rates of return.
• GE expects its businesses to earn returns on average total capital (ROTC) exceeding 20%

GE Healthcare recently announced that it will join forces with Columbia University's Earth Institute, directed by Jeff Sachs, to address pressing healthcare needs in rural Africa. Over the next 5 years GE Healthcare will donate $20 million worth of water filtration systems, power generation systems, healthcare materials, and other equipment to be used at UN Millennium Village Project sites in as many as 10 African nations with particularly acute rural health care needs. The UN Millennium Village Project is designed to reduce extreme poverty, hunger and disease by improving community health and reducing infant and maternal mortality rates. Participating countries include Ethiopia, Nigeria, Ghana, Kenya, Rwanda and Malawi.

In addition to providing healthcare and water filtration equipment, GE will offer its expertise for industrial infrastructure development. This will insure that adequate training in the use and maintenance of the equipment is provided so that Millennium Village Project sites will continue to benefit from GE's donation. GE Healthcare's donation will be combined with contributions from other NGO's to expand the reach of the Millennium Village Project.

In the U.S., GE Healthcare recently signed a 15-year deal to supply stem cell harvesting systems so that parents can have stem cells from their children's umbilical cords harvested and stored for possible later use to treat such diseases as leukemia, lymphoma and genetic blood disorders. ThermoGenesis Corporation developed the stem cell harvesting system called AutoXpress System. GE Healthcare will control the manufacture and distribution of the AutoXpress System. ThermoGenesis Corporation expects to gain $50 million in revenue over the course of the 15 year agreement.

General Electric (GE) ended the day at $33.97, down 17 cents, a .5% decrease in its price. Although the price remains static, GE's main interesting move this week is their initiative to expand its healthcare offerings into 10 African countries.

GE is not content to cater to just developed countries, and looking at the company long term, it is an interesting gamble. It's part PR, but on the other hand, GE realizes that by having the edge throughout the world, as the rest of the world develops further, it stands at the lead. In this fast paced world where everyone looks to week by week performance, it is interesting to see a company looking so long term.

GE ended the day at $33.45, up 15 cents. Of late the market has been getting ready for second quarter earnings, and some volatility is not surprising as GE bumps up and down as it gets closer to Friday, when earnings for GE's second quarter will be announced.

GE Healthcare announced recently a collaboration with TGen on cancer research, something that might provide some results while keeping initial research cost down.

More light on the social networking side of NBC's acquisitions are out now, with NBC moving a new executive over to iVillage. Is this in preparation for the rumored purchase of Tribe.net? Time will tell.

GE closed at $34.55, up 15 cents. Not exactly a major push, but it's nice to see things moving up for GE when its been pumping out a slew of positive reports. Today's news includes a major step forward in biotechnology for GE Healthcare is now better able to automatically harvest cord blood, which allows stem cells to be harvested.

The interesting news for GE today came from the normally moribund NBC division which is going to release Jay Leno's Tonight Show on iTunes in addition to the other NBC shows recently added to the online store. I don't imagine this will turn into a major cash cow, but CSI is certainly a very popular show all around. Finding other ways to gain money for existing properties is smart, and it is encouraging that more shows are coming out this way.

Oh, the indignities of being overweight -- the too-small plane seats, the plus-size clothing racks that are placed so close to those darn petite racks in department stores. And then there are the numerous degradations suffered at the hands of the medical establishment. Okay, we know we should lose weight, but do you have to tell us every visit?

General Electric's healthcare division is lending a helping hand, not only to ease embarrassment, but to help doctors do their job better when it comes to diagnosing large patients. It announced today that it has received FDA approval for a new kind of CT Scan machine that is plus-sized.

This goal was a little masked in the press release headline, which is a mouthful: "U.S. FDA Clears GE Healthcare's New Wide Bore Computed Tomography System; Industry's Most Powerful Wide Bore 16-Slice Technology Designed for Radiation Oncology and Radiology Communities." And, really. Wide Bore is just an unfortunate term in this context.

Luckily I kept reading and learned, " a number of patients are unable to undergo a CT scan because of the limitation of existing systems to accurately image large patients." Ah hah! I thought. Now I get it. Why didn't you just say so?