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Is GE a buy?
Posted by: ranjitsudan (IP Logged)
Date: June 18, 2014 02:23AM
I believe GE is undervalued and misunderstood by market as it transition it's earning base from GE Capital to Industrial segment. This has been a multi-year transition process which is concluding to end by 2014-15. However, market is still skeptic about the transition, providing long term investor an opportunity to buy shares at significant discount to its intrinsic value.
As per annual letter, GE will return 90-100b of capital back to shareholder in next 4 years, adjust that to current market cap, investor is paying 170b for GE.
GE Capital book value is about 82b with cash earning of about 9b in 2013, ROTE 16%. Given management is scaling down GE Capital, I believe BV will come down around 70b. 1.3x BV or 10x cash earning, GE capital is about 90B.
Add all of them, GE is worth 370B, trading about 270B. Investor has 37-40% upside with no growth assumption built in the valuation.
P.S: I am currently long GE in a concenterated portfolio. Please visit my blog for more ideas [undervaluedideas.blogspot.com.au]
Stocks Discussed: GE,