Grade Earnings Last Earnings Release 01/24/2018 Last Qtr. Actual vs. Est. ($1.52) / $0.30 Next Release 04/20/2018 $0.30 Year Ending 12/31/2017 $1.57 Quick Facts Dividend Yield 5.19% 52 Wk High $30.52 52 Wk Low $16.17 Short Interest 2% of float $16.18 01/25/2018 Rated 'SELL' since Apr 25th, 2015, when it was downgraded from 'HOLD' Year Ending 12/31/2018 $1.71 Market Cap $140.3B Overview Company Scores Poor Fundamental Grades MarketGrader currently has a SELL rating on General Electric Company (GE), based on a final overall grade of scored by the company's fundamental analysis. scores at the 50th percentile among all 5790 North American equities currently followed by MarketGrader. Our present rating dates to April 25, 2015, when it was downgraded from a HOLD. Relative to the Industrial Conglomerates sub-industry, which is comprised of 14 companies, General Electric Company's grade of ranks 12th. The industry grade leader is 3M Company (MMM) with an overall grade of 62.0. The stock has performed poorly in the last six months in relative terms, down 36.95% compared with the Industrial Conglomerates sub-industry, up 7.0% and the S&P 500 Index, up 13.53%. Please go to pages two and three of this report for a complete breakdown of GE's fundamental analysis. Price, Rating and Sentiment History - 2 Years 1
Growth C Investors Betting on a Turnaround Must Be Cautious as Company's Growth Record is Still Very Weak sales growth record showed a modest Market Growth LT D improvement in its latest quarterly report. Its total revenue increased 7.41% during the period to $31.22 billion from $29.07 billion booked in the Market Growth ST C year earlier quarter. This compares favorably to the company's 17.87% EPS Growth C decline in 12-month trailing sales over a three year period. Including the latest quarter, had $120.34 billion in 12-month Growth Potential C trailing sales compared to $146.53 billion in the comparable period ended three years ago. The latest improvement is not large enough to reverse a Earnings Momentum C long term declining trend, something that will require one or two more quarters of much better top line growth. In its latest report the company Earnings Surprise F also said profit fell from the comparable quarter a year ago, extending its long term profit decline. We measure long term profit growth by comparing full year (12-month trailing) net income to the equivalent period three years earlier. posted a Third quarter profit decrease of 9.16% to $1.94 billion from $2.13 billion (excluding extraordinary items) a year earlier; it also reported a 46.83% drop in profit in the 12 months ended last quarter to $8.00 billion from the $15.04 billion it made in the same period three years before. An average expansion of 13.29% in the company's margins during the last quarter, including EBITDA, operating and net margins, reversed a margin contraction shown in the previous quarter. Despite a considerable earnings shortfall reported by the company on January 24, 2018, in which earnings per share were 606.67% lower than what analysts were expecting, the stock fell only 4.20% following the news. This report extended a negative earnings surprise record, having missed analysts' estimates by an average of 101.08% with its last six quarterly announcements. Revenue Qtrly. 09/30/2017 $31.2B Revenue Qtrly. Year Ago $29.1B Revenue 1 Yr. Chg. 7.41% Revenue 12 Mo. Tr. Latest $120.3B Revenue 12 Mo. Tr. 3Y Ago $146.5B Revenue 12 Mo. Tr. 3Y Chg. (17.87%) Net Income Qtrly. 09/30/2017 $1.8B Net Income Qtrly. Year Ago $2.4B Net Income 1 Yr. Chg. (24.83%) Net Income 12 Mo. Tr. Latest $7.6B Net Income 12 Mo. Tr. 3Y Ago $14.7B Net Income 12 Mo. Tr. 3Y Chg. (48.52%) Value B Stock's Valuation Already Reflects Past Financial Results and Isn't Without Risk at this Point 's stock is currently trading at a 16.23 times Capital Structure D expected earnings per share for the next 12 months, a rich multiple based simply on traditional valuation metrics. In our P/E Analysis indicator, we P/E Analysis D typically calculate what we call an 'optimum' P/E ratio, based on the Price/Book Ratio D company's EPS growth rate. The higher the growth rate, the higher the 'optimum' P/E ratio, which we then compare to the company's forward or Price/Cash Flow Ratio B trailing P/E. The relationship between the two then determines our grade. In the case of, though, the company's earnings Price/Sales Ratio A growth rate is not meaningful since most of the numbers we would use to calculate the growth rate in recent quarters have been negative. So, Market Value A+ instead, we assign a grade to the company's P/E based simply on an absolute rating scale and, since the stock trades at a multiple that is significantly above the stock market's historical average and has no EPS growth rate, it receives a poor grade in this indicator. The stock's forward P/E of 16.23, based on the next twelve months' estimated earnings per share, is higher than its trailing P/E as well as the S&P 500's forward P/E of 15.20. Such valuation seems out of line with the company's financial performance and EPS growth prospects, making the stock highly speculative. 's are trading at 1.86 times their book value, which is based on the company's stockholders' equity. However, MarketGrader's price to book value analysis is based on a company's tangible book value, which excludes goodwill and other intangibles from its assets. In this case, General Electric Companys' intangible assets of $232.31 billion exceed its $76.10 billion in stockholders' equity by $-156.21 billion, which means its tangible book value is negative. This makes the shares' price to tangible book ratio meaningless. Thus, part of the risk of owning the company's shares lies in the possibility of a significant write-down of its intangible assets, which would automatically make its shares much more expensive than they currently appear to be. Investors are currently paying for the stock 27.45 times the $0.59 in cash flow per share generated by the company in the last four quarters, an excessive premium for its earnings prospects considering its poor fundamentals. Its stock price is also 1.17 times its trailing 12-month sales, a -37.76% discount to the Industrial Conglomerates industry's average price to sales ratio of 1.87. Finally, from a value perspective, we look at how much bigger the company's market capitalization is than its latest operating profits after subtracting taxes. By this measure is priced very attractively with a total value of $140.31 billion, only 9.36 times higher than its latest quarterly net income plus depreciation. P/E Ratio 12 Mo. Tr. 09/30/2017 13.05 Optimum P/E Ratio 15.00 Forward P/E Ratio 16.23 S&P 500 Forward P/E Ratio 15.20 Price to (Tangible) Book Ratio -0.90 Price-to-Cash Flow Ratio 27.45 Price/Sales Ratio 1.17 2
Profitability B- Company's Profitability Grades Reflect Mixed Results and Should Be Watched Closely in Coming Quarters 's profitability indicators reveal plenty of Asset Utilization B- weaknesses despite the $7.58 billion net profit booked by the company during the last 12 months, accounting for 6.30% of total revenue, an Capital Utilization D acceptable net profit margin. Its operating margin trailed its peer average Operating Margins B and its return on equity, also based on 12-month trailing results, was very poor, both of which helped drag down its composite profitability grade. Relative Margins C During the same period the Industrial Conglomerates industry had an average operating margin of 12.14%, 29.90% better than the company's Return on Equity C 9.98% margin. 's return on equity deteriorated significantly during the last twelve months to 9.40% from the year earlier Quality of Revenues B- period's 14.86%. Although the most recent value is still acceptable, it underscores a worrisome trend in an indicator MarketGrader considers very important in measuring the company's management's efficiency. In light of weakening profitability it will be important that the company doesn't expand its considerable leverage too much more. Its total debt is 1.79 times its total equity, with long term debt accounting for 58.72% of total capital. Both of these ratios are manageable assuming the company can stop the current slide. General Electric Company's core earnings in the last twelve months grew moderately from the twelve months ended a year earlier. The company's EBITDA for the most recent period was $22.38 billion, or 13.07% above the $19.79 billion earned from its core operations in the prior period. EBITDA is used by MarketGrader to measure the company's true earnings power since it includes interest expenses, income taxes, depreciation and amortization, all nonoperating expenses, which are nevertheless accounted for in other parts of our analysis that look at EPS gains and net income. Cash Flow B Company's Cash Flow Analysis Shows Mixed Results and Reveals a Few Operating Weaknesses 's cash flow fell slightly during the last quarter Cash Flow Growth D to $1.02 billion from $1.04 billion a year earlier, a 1.54% decline. What's more important and worth highlighting is the fact that up to the most EBIDTA Margin B recent quarter the company's twelve month trailing cash flow was growing Debt/Cash Flow Ratio C very healthily, up 5.69% compared to the same period ended a year before. This marks a sharp slowdown in the company's business Interest Cov. Capacity A+ environment and is likely to put considerable pressure on its margins. The company cut down significantly its net debt to cash flow ratio last quarter Economic Value B- to 13.79 from 21.44 a year earlier, a 35.70% reduction; this is based on $96.54 billion in net debt, defined as total debt minus cash on hand, and Retention Rate A $7.00 billion EBITDA reported last quarter. While this reduction is very positive and suggests the company is in the process of deleveraging, the ratio is still quite high and may limit its ability to continue paying down its debt with cash flow from operations or to raise new capital for future growth. Its cash on hand also fell in the last twelve months to $39.85 billion at the end of last quarter, a 24.13% drop from the year earlier quarter. It is therefore apparent has been using its cash reserves to deleverage--albeit at a moderate pace--as its total debt as a percentage of total capital was reduced to 64.18% last quarter from 64.60% in the same period a year before. As such, despite having less cash on hand now, the company's liquidity has improved significantly in the last year. 's ability to generate a true economic profit is measured by our Economic Value indicator. We first calculate the company's return on invested capital which, based on its 12-month trailing operating income was 6.52%. This is also based on $184.37 billion in capital invested in the business through a combination of debt and equity (common and preferred). We then calculate the after tax cost of each component of the capital structure, which for was slightly higher on the equity side with a weighted cost of 2.22% compared to a 1.27% weighted cost of debt. Combined they amount to a total cost of capital of 3.49%, which when subtracted from the company's return on investment results in a final economic value added (EVA) of 3.02%. This is an unremarkable but acceptable return to shareholders, which accounts for both the cost of running the business (operating) and the cost of capital, often ignored by other metrics. The company increased its quarterly common dividend on September 30, 2017 by 4.35%, to $0.240 cents a share from $0.230 cents. It has paid a dividend for at least 41 years and, based on this latest payout, the stock is currently yielding 5.19%. The $8.61 billion spent in the last 12 months in common dividend payments raises questions about its liquidity in light of generally poor fundamentals. Total dividends paid during this period represent 167.32% of total cash flow and 113.57% of after-tax earnings, an increase from an already elevated 105.46% payout ratio in the 12 months ended just a quarter earlier. Unless the company pares back its payout or quickly improves its profitability, this situation threatens to further erode its liquidity and jeopardize its balance sheet. Cash Flow Qtrly. 09/30/2017 $1B Cash Flow Qtrly Year Ago $1B Cash Flow 1 Yr. Chg. (1.54%) Cash Flow 12 Mo. Tr. Latest $5.1B Cash Flow 12 Mo. Tr. 3Y Ago $27.7B Cash Flow 12 Mo. Tr. 3Y Chg. (81.39%) Free Cash Flow Last Qtr. ($578M) Economic Value Total Invested Capital $212.5B Return on Inv. Capital 6.52% Weighted Cost of Equity 2.22% Weighted Cost of Debt 1.27% Total Cost of Capital 3.49% Economic Value Added 3.02% 3
Profile General Electric Co. is a technology and financial services company that develops and manufactures products for the generation, transmission, distribution, control and utilization of electricity. Its products and services include aircraft engines, power generation, water processing, security technology, medical imaging, business and consumer financing, media content and industrial products. The company operates through eight segments: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Appliances & Lighting and GE Capital. The Power & Water segment serves power generation, industrial, government and other customers worldwide with products and services related to energy production. The Oil & Gas segment supplies mission critical equipment for the global oil and gas industry, used in applications spanning the entire value chain from drilling and completion through production, liquefied natural gas and pipeline compression, pipeline inspection, and downstream processing in refineries and petrochemical plants. The Energy Management segment designs technology solutions for the delivery, management, conversion and optimization of electrical power for customers across multiple energy-intensive industries. The Aviation segment products and services include jet engines, aerospace systems and equipment, replacement parts and repair and maintenance services for all categories of commercial aircraft; for a wide variety of military aircraft, including fighters, bombers, tankers and helicopters; for marine applications; and for executive and regional aircraft. The Healthcare segment products include diagnostic imaging systems such as magnetic resonance, computed tomography and positron emission Tomography scanners, X-ray, nuclear imaging, digital mammography and molecular imaging technologies. The Transportation segment engages in global technology and supplier to the railroad, mining, marine and drilling industries. The Appliances & Lighting segment products include major appliances and related services for products such as refrigerators, freezers, electric and gas ranges, cooktops, dishwashers, clothes washers and dryers, microwave ovens, room Key Facts: 41 Farnsworth Street Boston,MA 02210 Phone: www.ge.com Biggest Company in Sub-Industry 3M Company (MMM) Grade 62.0 Market Cap:$150.31 billion Smallest Company in Sub-Industry Steel Partners Holdings L Grade 21.3 Market Cap:$533.35 million MarketGrader Dilution Analysis Impact of Change in Shares on EPS - Q1 2018 Dilution Summary Income Statement Last Qtr (09/2017) 12 Mo. Trailing Revenue $31.2B $120.3B *EPS Latest $0.22 *EPS Year Ago $0.23 EPS Change 1 Yr. (6%) C. Shares - Latest(M) 8,732 C. Shares - Yr Ago(M) 9,016 C. Shares - 1Yr Chg. (3%) EPS if Yr. Ago Shares $0.21 EPS Chg. if Yr. Ago (9%) EPS Loss from Dilution $0.01 *Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company. Op. Income $2.8B $12.0B Net Income $1.8B $7.6B *EPS $0.20 0 *Earnings per share are based on fully diluted net income per share excluding extrodinary items. This number may not match the headline number reported by the company. Balance Sheet Total Assets Total Debt Latest $378.0B $136.4B Stockholders Eq. $76.1B All numbers in millions except EPS Ratios Price/Earnings (12 mo. trailing) 13.05 Price/Tangible Book -0.90 Price/Cash Flow 27.45 Price/Sales 1.17 Debt/Cash Flow 2,649.93 Return on Equity 9.40% Gross Margin (12 mo. trailing) 25.39% Total Assets Intangible Assets $378.0B $232.3B '13 '14 '15 '16 '17 Qtr 1 0.19 0.22 0.23 0.23 0.24 Operating Margin (12 mo. trailing) 9.98% Net Profit Margin (12 mo. trailing) 6.65% Long Term Debt $108.3B Qtr 2 0.19 0.22 0.23 0.23 0.24 Total Debt Book Value Enterprise Value $136.4B $76.1B $96.5B Qtr 3 0.19 0.22 0.23 0.23 0.24 Qtr 4 0.22 0.23 0.23 0.24 4
Top Down Analysis Industrials Stocks in Sector: 873 Buys: 121 (13.86%) Holds: 165 (18.90%) Sells: 587 (67.24%) No. of stocks at: 52-Wk. High: 51 52-Wk. Low: 10 Above 50 & 200-day MA: 539 Below 50 & 200-day MA: 143 Industrial Conglomerates Stocks in Sub-Industry: 14 Buys: 1 (7.14%) Holds: 6 (42.86%) Sells: 7 (50.00%) No. of stocks at: 52-Wk. High: 2 52-Wk. Low: 0 Above 50 & 200-day MA: 11 Below 50 & 200-day MA: 1 # Ticker Grade Sentiment Name Price Next EPS 1 DQ 78.88 P Daqo New Energy Corp. Sponsored ADR $59.22 11/23/2017 2 TREX 77.58 P Trex Company, Inc. $117.22 11/01/2017 3 DAN 77.14 P Dana Incorporated $33.22 02/08/2018 4 SORL 77.08 N SORL Auto Parts, Inc. $6.30 11/16/2017 5 AGX 76.84 N Argan, Inc. $45.30 04/10/2018 6 MG.CA 76.40 N Magna International Inc. $72.30 02/23/2018 7 ALSN 75.48 P Allison Transmission Holdings, Inc. $44.80 02/14/2018 8 AC.CA 75.28 N Air Canada $23.02 02/14/2018 9 UNP 74.57 P Union Pacific Corporation $133.60 04/19/2018 10 FBF.CA 73.78 N Fab-Form Industries Ltd $0.74 N/A 471 GE 40.09 N $16.18 04/20/2018 # Ticker Grade Sentiment Name Price Next EPS 1 MMM 62.04 P 3M Company $252.36 04/26/2018 2 HON 59.53 P Honeywell International Inc. $161.84 01/26/2018 3 IEP 58.94 N Icahn Enterprises L.P. $57.94 11/08/2017 4 KBAL 56.99 N Kimball International, Inc. Class B $18.89 08/02/2017 5 IR 53.67 P Ingersoll-Rand Plc $91.57 02/02/2018 6 ROP 53.49 P Roper Technologies, Inc. $279.08 01/29/2018 7 OTTR 51.39 N Otter Tail Corporation $42.60 11/06/2017 8 NWL 49.31 N Newell Brands Inc $24.81 02/02/2018 9 UTX 47.48 P United Technologies Corporation $137.75 04/24/2018 10 ABB 44.44 P ABB Ltd. Sponsored ADR $28.28 10/27/2017 12 GE 40.09 N $16.18 04/20/2018 1. Price Trend. F 2. Price Momentum. F 3. Earnings Guidance. B- 4. Short Interest. A- 3.7 Copyright 2010 MarketGrader.com Corp. All rights reserved. Any unauthorized use or disclosure is prohibited. Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or any options, futures or other derivatives related to such securities ("related investments"). The information herein was obtained from various sources; we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regards to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. MarketGrader does not make markets in any of the securities mentioned in this report. MarketGrader does not have any investment banking relationships. MarketGrader and its employees may have long/short positions or holdings in the securities or other related investments of companies mentioned herein. Officers or Directors of MarketGrader.com Corp. are not employees of covered companies. MarketGrader or any of its employees do not own shares equal to one percent or more of the company in this report. 5