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General Electric (GE)
Buy PresentationSeptember 22,
2011
Provides technology and financial services 100 counties served
5 Business Segments: 1. Energy Infrastructure 2. Technology
Aviation, Healthcare, Transportation 3. NBC Universal
51% stake 4. GE Capital
Financial services, loans, credit cards 5. Home and Business Solutions
Appliances
ENERGY: Acquisitions, HD gas turbines, solar power
OIL AND GAS: Subsea
CONSUMER: Eco trends, “Green” lighting
GE CAPITAL: Lower losses, Real Estate Turnaround
TRANSPORTATION: Emerging markets, Hybrid Technology
AVIATION: Global Airline Strength
HEALTHCARE: Global growth
GE’s Energy Infrastructure is expected to increase 32.16% over the next two years. GE Capital is being scaled back.Technology is expected to increase 20.70% over the next two years.
•21% increase in Aviation•15.54% increase in Healthcare.
Strengths WeaknessesBroad range of products Pending law suitsWide geographic presence GE Capital?Increasing profitability
Opportunities ThreatsIncreased dividend Payout Weak economyAcquisitions Highly regulatedEmerging economies Strong competition
Methodology: Target yield / PEJustification: DCF / DDM difficult to apply given significant business changes on the horizon
Current Price: $15.93
Bull case: Reference Spreadsheet
Dividend2012E Dividend: $0.71Target Yield / Price: 3.0% / $29.67
P/E Multiple2012E EPS: $2.02Target Multiple / Price: 14.0x / $28.25
Average PT: $28.96 (+81%)
2011 Peak Valuation:Dividend Yield: 2.8%P/E: 15.8x
Risk/reward is favorable @ 1:2.5Downside should be limited to $12
~1x book value~5% div yield (assuming no increase from GE
Cap)
BUY 200 shares of GE at limit of ~$15 ($3,000)
Total position after purchase: 600 shares / 2.1% of portfolio
Industrials Target Sector Allocation: 7.3%, Current Sector Allocation: 4.9% Allocation after purchase: 6.3%