Does Heavy Interest Make GE a Buy?

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General Electric (GE) is one of the most popular industrial stock searches month after month by financial pros.

As you can see from above, the next closest is 3M (MMM) at barely more than 1/3rd the total volume.

Yet, the financials have never seemed promising for the once shining star.

For the last decade or so, Apple(AAPL) has held the top spot for the highest market cap company in the stock market. 

It took the title from Exxon (XOM), which only held it for a few years. 

But before XOM, there was one player who held the number #1 ranking in the 90s and in the 2000s, and that’s General Electric (GE). 

However, the 2008 financial crisis really took a toll on the company. And it has since been trying to get back on its feet. 

It’s been a bumpy road for GE shareholders. 

But is now the time to get back in?

Find out our analysis below…

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GE’s Business

GE is an industrial tech company. Its business is broken down into the following four segments: Healthcare, Renewable Energy, Power, and Aviation. 

Founded in 1892, GE was one of the 30 Dow Jones Industrial Average stocks, where it stayed from 1907 to 2018. 

Once one of the world’s largest conglomerates, GE announced plans to separate into three different public companies. GE Healthcare would be one of those companies. GE Renewable Energy, GE Power, and GE Digital will make up GE Energy. Lastly, there is GE Aviation. 

These tax-free spin-offs are expected to be made sometime in 2023 and 2024.  

It makes sense considering the size of these businesses. For example, GE Healthcare has over 48,000 employees. And it has served over one billion patients, doing more than 2 billion procedures per year, in 160 different countries. 

Its renewable energy and power business did roughly $33 billion in revenue. Thanks to its leading wind technologies, the world’s most efficient gas turbines, and its effort to modernize the grid. 

Its Aviation business generated $5.6 billion in revenue in Q1 2022, a jump of 12%. Thanks to strength in commercial services and with the military.

The pain for GE came from famed CEO Jack Welch’s legacy. Shares appreciated in the years leading up to the Great Recession as GE Capital became a larger part of the business.

When the credit crisis hit, GE Capital weighed on the company. Eventually, the company managed to remove the albatross, but not before it decimated the once industrial powerhouse.

Financials

One thing investors love seeing is revenue growth. But if you look closely, GE has seen its revenues drop considerably over the years. In fact, it’s doing about half the revenue it was doing ten years ago, largely due to the GE Capital divestiture.

GE has been trying to clean up its mess over the last several years going from a conglomerate to separating its units.

That’s why debt is something investors look at when analyzing GE. It has about $20.9 billion in cash, and $36.3 billion in debt, with a market cap of approximately $73.4 billion. 

It generates $4.7 billion in cash from its operations. Which indicates its financial situation is improving. GE once had to cut its dividend down to $0.01, it now sits at $0.32.  

GE has a current ratio of 1.20x. Any figure higher than 1 indicates that the company has enough reserves to handle its short-term liabilities.  

Valuation

GE has a P/E Non-GAAP ratio of 30.93x, which is actually higher than the sector median of 15.62x. However, it has dropped considerably, from the 5-year average of 38x. 

The company has an attractive price-to-sales ratio of 0.98x, which is significantly better than the sector median of 1.19x. Some investors consider a stock with a price-to-sales ratio of under 1 to be undervalued. 

Another valuation indicator investors will use is the price-to-cash-flow ratio. They typically like to see figures 10 or below. GE has a price-to-cash-flow ratio of 15.3x. But forward price-to-cash-flow is 10.3x. 

GE has a promising gross profit margin of 24.9%. Unfortunately, the firm has a negative net income margin of 6.4%. And its return on equity is negative at -11.1% 

It will be interesting to see how well the spin-off does. Because as a whole, GE has not been able to make it work. The revenue growth YoY was a dreadful 1%

Believe it or not, that is an improvement from the revenue 5-year average of -9%

Our Opinion – 5/10

GE was one of the richest companies in the world. Its rich history goes back to JP Morgan, and Thomas Edison. But after 100+ years, the company is trying to reinvent itself once again. 

Clearly, there are some big changes going on with the spin-off set to happen over the next couple of years. 

With that said, it’s still early to get involved with GE. it’s better to see how things shake out before making a long-term commitment. 

Turnarounds don’t happen overnight. And while we think buying shares at this level isn’t a bad idea, we think waiting is better.