Is General Electric undervalued based on future cash flows and its price relative to the stock market?
Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current
share price of General Electric to its discounted cash flow value.
The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.
How is this discounted cash flow calculated?
Amount off the current price General Electric is available for.
Share price is $24.32 vs Future cash flow value of $25.64
Current Discount Checks
For General Electric to be considered undervalued it must be available for at least 20% below the current price. Less than 40% is even better.
- General Electric's share price is below the future cash flow value, but not at a significant discount (< 20%).
- General Electric's share price is below the future cash flow value, but not at a substantial discount (< 40%).
We assess General Electric's value by looking at:
- Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
- Is the PE ratio less than the market average, and/ or less than the Capital Goods industry average (and greater than 0)? (2 checks)
- Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
- Is the PB ratio less than the Capital Goods industry average (and greater than 0)? (1 check)
General Electric has a total score of 2/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (68.34%).
Full details on the Value part of the Simply Wall St company analysis model.
Discounted cash flow (Free cash flow to Equity)
The calculations below outline how an intrinsic value for General Electric is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
5 year cash flow forecast
See our documentation to learn about this calculation.
|Levered FCF (USD, Millions)
||Extrapolated @ (-5.14%)
||Extrapolated @ (-5.14%)
Discounted (@ 9.4%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $17,206 × (1 + 2.3%) ÷ (9.39% – 2.3%)
Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($220,865 / 8,615)
Value per share:
Current discount (share price of $24.32): 5%
Estimate of Discount Rate
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 9.39% = 2.33% + (0.92 * 7.67%)
Estimate of Bottom Up Beta
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.92 = 0.635 (1 + (1- 30%) (64.15%))
Levered Beta used in calculation = 0.92
- The risk free rate of 2.33% is from the 10 year government bond rate in US.
- The bottom-up beta is estimated by analysing other companies in the same industry.
- The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
- The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.
How is General Electric expected to perform in the next 1 to 3 years based on estimates from 14 analysts?
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.
Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Expected earnings growth over 3 years.
Future Earnings growth analysis
Is General Electric expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are General Electric's annual earnings growth expected to exceed 3.4% over the next 3 years?
- After 1 year
- After 3 years
1 & 3 year estimated growth in earnings
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Which of the these is expected to increase by over 50% in 2 year's time?
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
- General Electric is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.
Improvement & Relative to industry
- Expected to be less than the Capital Goods industry average.
- An improvement in General Electric's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess General Electric's future performance by looking at:
- Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
- Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
- Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
General Electric has a total score of 4/6, see the detailed checks below.
Note: If no +3 year data is available, +2.5 year data may be used.
Note 2: We use GAAP per Share in all our calculations.
Full details on the Future part of the Simply Wall St company analysis model.
How has General Electric performed over the past 5 years?
The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare General Electric's growth in the last year to its industry (Capital Goods).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
- General Electric's earnings growth has not matched the industry average in the past year.
- General Electric's 1 year earnings growth exceeds its 5 year annual average (4% vs -10.1%).
- General Electric earnings have fallen over the past 5 years.
General Electric's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
- Poor return on shareholders funds (ROE) last year.
- General Electric performed worse than the Capital Goods industry average based on return on assets (ROA) last year.
- Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
Past performance checks
We assess General Electric's performance over the past 5 years by checking for:
- Has earnings per share (EPS) increased in past 5 years? (1 check)
- Has the EPS growth in the last year exceeded that of the Capital Goods industry? (1 check)
- Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
- Is the Return on Equity (ROE) higher than 20%? (1 check)
- Is the Return on Assets (ROA) above industry average? (1 check)
- Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
General Electric has a total score of 2/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations.
Full details on the Past part of the Simply Wall St company analysis model.
How is General Electric's financial health and their level of debt?
A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).
The boxes below represent the relative size of what makes up General Electric's finances.
The net worth of a company is the difference between its assets and liabilities.
- General Electric is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- General Electric's long term commitments exceed its cash and other short term assets.
This treemap shows a more detailed breakdown of General Electric's finances.
If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
- High level of stock/ inventory/ unsold assets.
- Total debt is covered by short term assets.
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.
The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.
If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
- The level of debt (170%) compared to net worth is high (greater 40%).
- The level of debt compared to net worth has been reduced over the past 5 years (346% vs 170% today).
- Total debt is not well covered by annual operating cash flow (less than 20% of total debt).
- Interest on debt is well covered by earnings (5.2x coverage).
Financial health checks
We assess General Electric's financial health by checking for:
Full details on the Health part of the Simply Wall St company analysis model.
- Are short term assets greater than short term liabilities? (1 check)
- Are short term assets greater than long term liabilities? (1 check)
- Has the debt to equity ratio increased in the past 5 years? (1 check)
- Is the debt to equity ratio over 40%? (1 check)
- Is the debt covered by short term assets? (1 check)
- Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
General Electric has a total score of 3/6, see the detailed checks below.
What is General Electric's current dividend yield, its reliability and sustainability?
Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Current annual income from General Electric dividends. Estimated to be 4.07% next year.
If you bought $2,000 of General Electric shares you are expected to receive $80 in your first year as a dividend.
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account?
It is up there with the best dividend paying companies?
- Paying above low risk savings rate. (2.25%)
- Paying above the markets top dividend payers. (3.18%)
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.
We also check to see if the dividend has increased in the past 10 years.
- Dividends per share have been volatile in the past 10 (annual drop of over 10%).
- Dividends per share have fallen over the past 10 years.
Current Payout to shareholders
What portion of General Electric's earnings are paid to the shareholders as a dividend.
- Dividends paid are not well covered by net profit (0.9x coverage).
Future Payout to shareholders
- Dividends after 3 years are expected to be covered by net profit (1.8x coverage).
Income/ dividend checks
We assess General Electric's dividend by checking for:
Full details on the Dividends part of the Simply Wall St company analysis model.
- Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
- Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
- Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
- If they have paid a dividend for 10 years has it increased in this time? (1 check)
- How sustainable is the dividend, can General Electric afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
General Electric has a total score of 3/6, see the detailed checks below.
What is the CEO of General Electric's salary, the management and board of directors tenure and is there insider trading?
Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
Mr. David Leon Joyce has been Vice Chair of General Electric Company since September 2016. Mr. Joyce has been the Chief Executive Officer and President of GE Aviation since June 2008. Mr. Joyce serves as Vice President and General Manager of Commercial Engines at GE Infrastructure, Inc. Mr. Joyce has been the Chief Executive Officer and President of GE Aviations since September 2008. He served as Senior Vice President of General Electric Company since September 2008 until September 2016. He served as Vice President of GE Aviations since November 2002 and its General Manager of Commercial Engines since November 2002, where he was responsible for all commercial jet engine products and global support. He joined GE - Aviation in the Engineering Development Program in 1980, as a Product Engineer and spent 15 years advancing his career in design and development of GE's commercial and military engines. He has experience in turbo machinery and control systems design. He served as Manager of Engineering Quality & Processes and Master Black Belt for the GE - Aviation's Engineering Division since 1995 and as General Manager of Customer and Product Support Operations since 1998. He served as General Manager of Small Commercial Engine Operations at GE-Aviation since 2000, where he led GE's successful bid to power China's ARJ21 regional jet. In addition, he oversaw the certification program for the CF34-8 engine for the Bombardier CRJ900 and the Embraer E170/175 aircraft programs. Throughout his 22-years at GE Aircraft Engines, he held several leadership positions in quality, engineering and customer support. He has been Vice Chairman of GE since September 19, 2016. He serves as a Member of Board of Governors at Aerospace Industries Association. Mr. Joyce earned both a B.S. and an M.S. in Mechanical Engineering from Michigan State University and an M.B.A. in Business Finance from Xavier University.
- General Electric has a new CEO, we can't show their compensation history.
- CEO's compensation appears reasonable.
Management Team Tenure
Average tenure of the General Electric management team:
- The average tenure for the General Electric management team is over 5 years, this suggests they are a seasoned and experienced team.
Vice Chair & CFO
Vice Chair of Business Innovations and Chief Executive Officer of Business Innovations
CEO & Director
Board of Directors Tenure
Average tenure of the General Electric board of directors:
- The tenure for the General Electric board of directors is about average.
Board of Directors
CEO & Director
Senior VP & Chairman
Recent Insider Trading
- More shares have been bought than sold by General Electric insiders in the past 3 months.
Who owns this company?
We assess General Electric's management by checking for:
- Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
- Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
- Is the average tenure of the management team less than 2 years? (1 check)
- Is the average tenure of the board of directors team less than 3 years? (1 check)
General Electric has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.
Note: We use the top 6 management executives and board members in our calculations.
Note 2: Insider trading include any internal stakeholders and these transactions
Full details on the Management part of the Simply Wall St company analysis model.
General Electric Company operates as an infrastructure and technology company worldwide. Its Power segment offers gas and steam power systems; maintenance, service, and upgrade solutions; distributed power gas engines; water treatment, wastewater treatment, and process system solutions; and nuclear reactors, fuels, and support services. The company’s Renewable Energy segment provides wind turbine platforms, and hardware and software; onshore and offshore wind turbines; and solutions, products, and services to hydropower industry. Its Oil & Gas segment offers surface and subsea drilling and production systems, and equipment for floating production platforms; and compressors, turbines, turboexpanders, reactors, industrial power generation, and auxiliary equipment. The company’s Aviation segment designs and produces commercial and military aircraft engines, integrated digital components, and electric power and mechanical aircraft systems; and provides aftermarket services. Its Healthcare segment offers diagnostic imaging and clinical systems; products for drug discovery, biopharmaceutical manufacturing, and cellular technologies; and medical technologies, software, analytics, cloud solutions, and implementation services. The company’s Transportation segment provides freight and passenger locomotives, and rail and support advisory services; and parts, integrated software solutions and data analytics, software-enabled solutions, mining equipment and services, and marine diesel and stationary power diesel engines and motors, as well as overhaul, repair and upgrade, and wreck repair services. Its Energy Connections & Lighting segment offers industrial, grid, power conversion, automation and control, lighting, and current solutions. The company’s Capital segment provides industrial and energy financial services; and commercial aircraft leasing, financing, and consulting services. General Electric Company was founded in 1892 and is based in Boston, Massachusetts.
|Name:||General Electric Company|
|Market Cap:||$209,522 million|
41 Farnsworth Street, Boston, 02210, United States
General Electric employees.