First Look at General Electric. Malaise!

Preferred stock: GE paid $1.031 billion in preferred dividends last year.  They reported that they retired the preferred dividend on their 4Q 2011 earnings webcast.

Bonds: $112.6 billion outstanding.  That is a really ugly bond chart.  GE loves issuing debt.

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DIVIDEND RECORD: Not good because of their huge dividend cut in 2Q 2009.  GE cut the dividend from $0.31 to $0.10 quarterly.  They have since increased the dividend to $0.17 quarterly at the present time.

Dividend: $0.17

Dividend yield: 3.6% ($0.68 annually/$19.01 share price)

Dividend payout: 55% using 2011 earnings of $1.23 –OR- 48% using the average adjusted earning power of $1.41

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EARNING POWER: $1.41 @ 10.58 billion shares

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income

Shares

Adjusted EPS

2007

$2.17

$22,208 M

10,218 M

$2.10

2008

$1.72

$17,335 M

10,098 M

$1.64

2009

$1.01

$10,725 M

10,615 M

$1.01

2010

$1.06

$11,344 M

10,678 M

$1.07

2011

$1.23

$13,120 M

10,620 M

$1.24

Five year average adjusted earnings per share is $1.41

Consider contrarian buying below $11.28 (8 times average adjusted EPS)

Consider value buying below $16.92 (12 times average adjusted EPS)

General Electric (GE) is currently trading at 13.5 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $28.20 (20 times average adjusted EPS)

BALANCE SHEET – GE is a company in decline and the balance sheet shows it.  The balance sheet is not strong.  GE forgot how to compound shareholder equity.  The entire balance sheet should remain suspect because of the bailed out GE Capital.

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Book value per share: $11.00 ($116.438 B equity divided by 10.58 billion shares = $11.00 per share)

Tangible book value per share: $3.00 ($116.438 B equity – $72.625 B goodwill – $12.068 B intangibles = $31.745 B tangible book value divided by 10.58 billion shares = $3.00 per share)

Price to book value ratio: 1.73 (under 1.0 is good)

Price to tangible book value ratio: 6.33 Horrible!!

Current ratio: 2.29 latest quarter (over 2.0 is good)

Quick ratio: 2.21 latest quarter (over 1.0 is good)

Debt to equity ratio: 2.16 (lower is better)  Notice all the red above the green on the balance sheet chart.  They love debt.

Percentage of total assets in plant, property, and equipment: 9.17% (the higher the better) Wow! That number really shocked me.  I though GE was an industrial conglomerate with a large percentage of its assets in net PPE.  10 years ago they were at 8.21% net PPE.  Current assets comprise 63.18% of total assets (42.87% accounts receivable & 18.39% cash equivalents), other long term assets comprise 15.85%, and intangibles made up 11.81% of total assets.

The working capital trend is up.

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CONCLUSION –   As usual, the best time to buy GE in recent years was in March 2009.  It was a contrarian investment back then at $7.06 per share.  General Electric was a steady dividend payer and grower from 1987 to 2009, but then they panicked and cut the dividend from $0.31 to $0.10 quarterly.  GE had plenty of retained earnings to continue to pay the dividend during the recession of 2009.  I think they really damaged their reputation as a dedicated dividend payer.  They pay a modest dividend and are cautiously growing the dividend since the cut.  The stock is still priced for investment at 13.5 times average adjusted earning power.  But the coming worldwide double-dip recession will drag the price of the stock back down to value pricing territory.  The balance sheet is weak when you look at increasing debt and a lack of shareholder equity growth, the price to tangible book value ratio is just horrible, and the net assets in property, plant, and equipment.   I would ignore this stock until if falls below $13.00.  Those are some key support levels from June 2010 and September 2011.

GE Capital owns Greek bonds!!  Complete idiots are running that part of the company.  Enough said.

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DISCLOSURE – I don’t own General Electric (GE) and I would never own it as long as GE Capital is part of the company.

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Published in: on April 11, 2012 at 6:49 pm  Leave a Comment  

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