I think it's time to take a look at another company that has been on my radar for a LONG time. I've owned a few shares of this company for many years in a DRIP, and I have a decent long term CAGR. But recently I've begun to look at them as a potentially much larger investment... Become a Complete Fool
Recent Price: $35.28 @ 1:00 PM, 2006-12-07
Home Page - http://www.ge.com/en/
My first screen � Who they are and what do they do? And do I like them?
GE was founded in 1890 by Thomas A. Edison (yes, THAT Thomas Edison) as a merging of his various businesses into a single entity, the Edison General Electric Company. Today, GE is made up of 6 businesses, each with a number of subsidiaries in their field. GE Healthcare provides electronics related to medicine and healthcare. GE Commercial Finance provides financing to companies. GE Money provides consumer financing. GE Industrial is the manufacturing arm for most of the GE products and appliances you use every day. GE Infrastructure includes the rail, aviation and energy businesses. And NBC Universal is the home of many television channels and movie studios. GE is either #1 or #2 in every business segment in which they participate. GE is a Dow Jones Industrial Average component and is the 2nd largest company in the world according to Forbes.
Face it, if you don't know who GE is, you've been living under a rock for the last 100 years. This is a company to be admired for their history, business practices, and market leadership.
IMHO, they pass my first screen with flying colors. Here comes my second screen � How well are they run?
Financial data pulled from Yahoo finance - http://finance.yahoo.com/q?s=GE
Profit Margin � 10.77% Operating Margin � 15.39%
Return on Assets � 2.31% Return on Equity � 17.56%
Don't let the return on assets fool you � the companies financing arm skews this number as well as the long term debt numbers. These are all healthy solid numbers.
Current Assets � 83.8 Billion
Cash and Investments � 59.4 Billion
Current Liabilities � 211.3 Billion
Current portion of Long Term Debt � 167.2 Billion
Flow Ratio � 0.55
Long Term Debt � 242.9 Billion
Again, that long term debt looks frightening, but put in context of their financial services, and it's completely understandable. Heck, in that aspect, GE ranks as the 28th largest bank / lender in the world. Otherwise that number would frighten anyone away. As a bank, it's great! The flow ratio looks very good � GE knows how to manage their cash flow.
Cash Flow � GE throws off a LOT of cash every quarter and invests a lot of it back into their business. No issues with cash flow here.
GE pays a yearly dividend of $1.00 per share for a 2.80% yield.
Again, GE passes my second screen as it looks to be very well run. So it's on to my third screen � Are they a good bargain right now?
BMW Stats: 25 year RMS -1.82 RF 1.75 Average CAGR 15.7% Current CAGR 13.2%
Data from Mike Klein's BMW Method site at http://invest.kleinnet.com/bmw1/stats25/GE.html
GE's stock price has declined from it's all-time highs in 2000 as it was overpriced in the tech bubble. It sits with a P/E of 21.45 today.
Growth Rate � GE has grown 15.1% this year, and is expected to grow 13.1% next year and 10.0% for the next 5 years. Over the past 5 years, the growth rate was only 0.3%. Much of that can be traced to the recession that followed the tech bubble bursting.
Analyst Opinion � of 20 analysts following GE, 17 rate it a Buy or Strong Buy, with only 3 rating it a Hold.
Valuation � I think the 10% growth rate the experts predict is a pretty safe bet. Outside of acquisitions, I see it difficult for GE to grow much faster than that. I think a P/E of 25-30 is fair for GE as they are so dominant in their industries. Their current EPS is 1.645. Plus there is that fat 2.8% dividend. Given that, here is my calculation for a 5 year target.
1.645 * ((1.1+.028)^5) * 28 = $84.11
That gives the company a projected 5-year CAGR of 19% on their stock price. The BMW method seems to support this as well. When looking at the charts on GE, I extrapolate roughly to about $80 in 5 years when I filter out the tech bubble. Warning: my extrapolation is by method of roughly gauging the lines and picking my own average CAGR, not by a scientific method. I'll leave that for people with more time to draw such graphs. =)
My Take: This is a solid company that is trading down in a very attractive range. Their price has been essentially flat over the last two years which has brought the RMS and RF into very attractive regions. All the while, the company has continued to pay a nice dividend and raise it every year. It makes a solid BMW candidate as well as a solid long term buy-n-hold candidate. As mentioned earlier, I currently own shares of GE and will likely keep adding shares on price dips, as well as allowing my dividends to be reinvested.
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I think it's time to take a look at another company that has been on my radar for a LONG time. I've owned a few shares of this company for many years in a DRIP, and I have a decent long term CAGR. But recently I've begun to look at them as a potentially much larger investment...
Become a Complete Fool