General Electric (NYSE: GE) Presented by Adam Ritt, BetterInvesting Director of Communications

Transcription

1 General Electric (NYSE: GE) Date Presented: March 2, 2011 Presented by: Adam Ritt Directr f Cmmunicatins, BetterInvesting Disclaimer The infrmatin in this presentatin is fr educatinal purpses nly and is nt intended t be a recmmendatin t purchase r sell any f the stcks, mutual funds, r ther securities that may be referenced. The securities f cmpanies referenced r featured in the seminar materials are fr illustrative purpses nly and are nt t be cnsidered endrsed r recmmended fr purchase r sale by BetterInvesting Natinal Assciatin f Investrs Crpratin ( BI ) r its vlunteer advisry bard ( BIVAB ). The views expressed are thse f the instructrs, cmmentatrs, guests and participants, as the case may be, and d nt necessarily represent thse f BetterInvesting r BIVAB. Investrs shuld cnduct their wn review and analysis f any cmpany f interest befre making an investment decisin. Securities discussed may be held by the instructrs in their wn persnal prtflis r in thse f their clients. BI presenters and vlunteers are held t a strict cde f cnduct that precludes benefiting financially frm educatinal presentatins r public activities via any BetterInvesting prgrams, events and/r educatinal sessins in which they participate. Any vilatin is strictly prhibited and shuld be reprted t the CEO f BetterInvesting r the Directr f Chapter Develpment. This presentatin is being recrded. 2 What s a General Electric? A Mutual Fund fr the General Ecnmy Diversified infrastructure, finance and media cmpany taking n the wrld's tughest challenges. Frm aircraft engines and pwer generatin t financial services, medical imaging, and televisin prgramming, GE perates in mre than 100 cuntries and emplys abut 300,000 peple wrldwide. Beginnings g back t 1878, when Thmas Edisn established the Edisn Electric Light Cmpany. Businesses Energy Energy Services Oil & Gas Pwer & Water Technlgy Infrastructure Aviatin Health Care Transprtatin GE Capital Aviatin Financial Services Cnsumer Finance Energy Financial Services Real Estate Hme & Business Slutins Appliances & Lighting Intelligent Platfrms NBC Universal Cable, Film, etc. GE enters and exits businesses frequently: prtfli cnstantly evlving In 1986 reacquired RCA, which included NBC. Shed ther businesses. Annunced in 2009 a sale f 51 percent f NBC Universal t Cmcast. GE Healthcare acquires medical sftware firm IDX Systems in 2006 fr $1.2 billin. GE Advanced Materials sld t Apll Management fr $3.8 billin. The BetterInvesting philsphy: Management, management, management General Electric knwn fr great management "The bench is widely viewed as ne f the deepest in the wrld. Brks C. Hltm, Gergetwn University s McDnugh Schl f Business (BusinessWeek, April 15, 2010) Adpted Six Sigma in 1995: The central idea behind Six Sigma is that if yu can measure hw many defects yu have in a prcess, yu can systematically figure ut hw t eliminate them and get as clse t zer defects as pssible. GE delivered excellent grwth under Jack Welch ( ) Jeff Immelt named successr tk ver Sept. 7, /2/2011 1

2 GE Divisins: Revenues GE: Operating Prfit USD in millins, unless therwise stated Divisin GE Capital 68,577 49,746 47,040 Technlgy Infrastructure 41,605 38,517 37,860 Aviatin 19,239 18,728 17,619 Healthcare 17,392 16,015 16,897 Transprtatin 5,016 3,827 3,370 Energy Infrastructure 43,046 40,648 37,514 Energy 31,225 33,698 30,854 Oil & Gas 7,417 7,743 7,561 NBC Universal 16,969 15,436 16,901 Hme & Business Slutins 10,113 8,443 8,648 Crprate 2,201 2,488 2,248 Cnslidated Revenues 182, , ,211 Rank f Divisins by Revenue 1.GE Capital 2.Technlgy Infrastructure 3.Energy Infrastructure USD in millins, unless therwise stated Divisin Energy Infrastructure 6,497 7,105 7,271 Energy 5,515 6,045 6,235 Oil & Gas 1,127 1,222 1,205 Technlgy Infrastructure 7,460 6,785 6,314 Aviatin 3,684 3,923 3,304 Healthcare 2,851 2,420 2,741 Transprtatin GE Capital 8,014 1,462 3,265 NBC Universal 3,131 2,264 2,261 Hme & Business Slutins Crprate (1,910) (2,826) (3,321) Ttal 23,560 15,160 16,247 Rank f Divisins by Operating Prfit 1.Energy Infrastructure 2.Technlgy Infrastructure 3.GE Capital 5 6 GE: Operating Margin Percentage GE: End Markets Divisin Energy Infrastructure 15.1% 17.5% 19.4% Energy Oil & Gas Technlgy Infrastructure Aviatin Healthcare Transprtatin NBC Universal GE Capital Hme & Business Slutins Ttal Rank f Divisins by Operating Margin 1.Energy Infrastructure 2.Technlgy Infrastructure 3. NBC Universal 7 8 3/2/2011 2

3 Recent Histry Recent News Grwth slws dwn Past 10 years EPS grwth: 6% : 12% (Value Line) As GE Capital ges, s ges GE Prblems tk fcus away frm industrial side f business Caused stck t plunge t abut $7 GE s gal: reduce imprtance f GE Capital GE (blue) vs. S&P 500 (red), Buffett t the rescue Berkshire Hathaway: $3 billin investment in 2008 Preferred shares with 10% dividend GE plans t call in shares Up 18% fr YTD thrugh Feb. 16 Jumped 7% n Jan. 21 after reprting 4Q earnings Beat analysts expectatins GE Capital imprving Majr increase in lcmtive sales 12% increase in electric turbines and jet engines "The mst exciting thing is the return t rganic revenue grwth. Jack De Gan, Chief Investment Officer, Harbr Advisry Crp. (Prtsmuth, N.H.) 9 10 On t the Stck Selectin Guide Revenue Estimates Online Stck Selectin Guide Hused n the BetterInvesting member site Allws yu t determine: Cmpany s quality Whether the stck is selling at the right price Study histry Sales, earnings, management perfrmance Determine whether we want t cntinue study Determine whether stck is selling at right price 1. Basic mde 2. Preliminary data Surces Histrical data Recent histry? Value Line: 3% (Annual Rates bx), 7.5% (2010 t frecast) Mrningstar: 5% lng-term rganic grwth Analysts cnsensus estimates: $142.3B in 2011 (dwn 5.3%), $147.9B in 2012 (up 4.0%) Citibank: dwn 9.6% in 2011, up 4.2% in 2012, up 5.4% in 2013 Credit Suisse: dwn 7.7% in 2011, up 6.2% in 2012, up 6.0% in /2/2011 3

4 Sanity Check: Five-Year Mdel Is five-year grwth f 5% grwth achievable? Use analysts estimates f next tw t three years Prject final tw t three years Is this a realistic scenari? Five-Year Mdel 2010 Ann. Grwth $150.2B (GE figure) 2011 (ACE) $142.3B (5.3%) 2012 (ACE) $147.9B 4.0% 2013 (Citi/Credit Suisse) $156.4B 5.7% 2014 $172.0B 10.0% 2015 $191.8B 11.5% Pll Questin What is the estimated future sales grwth? 3.0% (Value Line Annual Rates bx, GE s 10-year rate) 5% (Mrningstar lng-term rganic rate/ge rate ) 7.5% (Value Line 3-5 year frecast) Pll Results EPS Estimates Surces Histrical rates Recent histry Value Line: 7.5% (Annual Rates bx), 23.5% (2010 t frecast) Analysts cnsensus estimate (lng term): 13.9% ACE: $1.32 in 2011 (up 14.8%), $1.62 in 2012 (up 22.7%) S&P 3-year grwth: 14% Argus 5-year grwth: 11% Credit Suisse 3-year grwth 19.7%; Citibank 3-year grwth 15.8% Cnclusin The Analysts Must Be Crazy? /2/2011 4

5 Earnings Grwth Higher Than Sales Grwth Earnings Grwth: Outpacing Sales? Over the lng run, gravity eventually takes hld EPS wn t utpace sales frever Cnservative investrs dn t estimate higher EPS grwth than sales grwth We re lking ut ver five years, nt frever If yu believe EPS grwth can exceed sales grwth, understand why. Fewer cmmn shares utstanding; the cmpany is buying back shares Prfit margins are increasing Return t prfitability in the transprtatin segment Mrningstar Energy infrastructure will be backbne fr the firm s grwth Mrningstar Cmmn Shares Outstanding GE extended repurchase prgram thrugh 2013 $11.6 billin remaining Value Line prjects mdest decrease in shares utstanding: B in 2010 t B in Prfit Margins Analysts acrss the bard expect much higher prfit margins Value Line: 8% net prfit margin in 2010 t 13.4% in Citibank: 18.9% grwth in pre-tax prfits fr next 3 years Pll Questin What is the estimated future earnings grwth? Same as Sales Grwth Rate 5.5% (Rate fr ) 7.5% (Value Line Annual Rates Bx prjectin) 14% (analysts cnsensus estimate) 12% (ACE minus 2 percentage pints) Pll Results /2/2011 5

6 P/E Ratis High P/E rati has held up remarkably well Lw f 17 in 2009, high f 24.3 in 2005 Highs f 2000 (47.8) and 2001 (38) likely wn t return P/Es much higher than grwth because f cmpany s quality Lw P/Es cratered in 2008 and in 2008, 5.6 in 2009 Became valued as a financial cmpany Financial cmpanies ften have lwer P/Es because there s less clarity n earnings Pll Questin What is the estimated average high P/E rati? 18.9 (5-year average) 17.1 (average in 2009/2010) 1.5 times the future grwth rate f earnings (PEG = 1.5) 2.0 times the future grwth rate f earnings (PEG = 2.0) Pll Results Pll Questin What is the estimated lw price? $5.73 (Recent market lw price) $12.90 (5-year average lw P/E x lw EPS) $13.75 (52-week lw) $14.57 (70% f current price) /2/2011 6

7 Pll Results Reminder The prices and data were lcked in n (enter date) The judgments used in this study were a team effrt Always d yur wn study and make yur wn judgments befre making any investment decisins Thank Yu! Questins? adamr@betterinvesting.rg Upcming Stck Study: Abbtt Labratries (NYSE: ABT) Carl Theine Puget Sund Chapter President Wednesday, April 6, :00 PM Eastern Time /2/2011 7