5
General Electric Company (GE)
- Equity
- US
- Industrials
RISK
RETURN
Key risk factors
Strong trading liquidity
Low price volatility
Sufficiently resilient to price shocks
Key return factors
Greatly overvalued vs peers
Somewhat favourable analyst view
Decent price performance
Company profileGeneral Electric Company, doing business as GE Aerospace, designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems. It also offers aftermarket services to support its products. The company operates in the United States, Europe, China, Asia, the Americas, the Middle East, and Africa. General Electric Company was incorporated in 1892 and is based in Evendale, Ohio.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
35.70
41.20
PEG
-
-
P/B
6.10
5.20
P/S
2.60
5.00
P/FCF
38.90
57.50
EV/EBITDA
34.00
51.30
Considering past and projected metrics, the stock is distinctly 'expensive' compared to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.
Performance: Decent
The stock has been growing steadily in the past six months, adding 40% in total. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 22ppts over past six months and grown 2ppts faster in the past month. At the same time, the stock's performance relative to its the peers from the same country and sector is different. The stock outperformed these peers by 25ppts over the past six months and grew 1ppts faster in the past month. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.
Analyst view: Somewhat favourable
The average target price is 164 and suggests 2% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 190.7. This translates into 14% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 134.3. This is equivalent to 20% downside potential in the worst case.
Profitability: Average
RoE
General Electric Company reported a return on equity (RoE) of 17.9% in the last 12 months, down from 36.3% in FY23. The market consensus projects an RoE of 37.2% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 3.1% in the last 12 months, a decrease from 6.3% in FY23. The market analysts predict that RoA will be 6.7% in FY24, more robust than its peers in this period.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 4.5%, below the peers. The consensus estimate for FY24 for RoCE is 2.9%, again behind the peers.
Net margin
EBITDA margin
Historically, GE has reported average net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 7.3%, down from 16.3% in FY23. The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 7.9% in the last 12 months, up from 7.8% in FY23.
RoIC / WACC = 1(average value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.0 in the past several years. This ratio implies a average shareholder value creation. Growth: Average
Revenue
EBITDA
EPS
Free cash flow
GE reported revenue of USD 69 520mn in the last 12 months, up 2% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 53% from FY23 to USD 4.69. Market expects EPS to reach USD 4.64064 in FY24.Revenue has been declining slowly over the past several years (negative), while Declining revenue and poor cost control have resulted in a sharp fall in EBITDA in recent years (strongly negative). This all contributed to very fast EPS growth (strongly positive). Free cash flow generation has been quite favourable and in contrast to the falling EBITDA. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF. On the positive side, revenue dynamics is very stable.
Dividends: Reasonable
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.
Default risk: Moderate
The risk of default is moderate. We note solid return on capital, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and bleak profitability.
Volatility: Low
In normal market circumstances, GE is not overly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from limited to average.
Stress-test: Modest
In highly turbulent market conditions, GE is as volatile as an index. In other words, the stock will move with the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be limited.
Selling difficulty: Very low
GE boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.