Last week, General Electric (GE) announced that it will sell its remaining 49% equity stake in the NBCUniversal ("NBCU") joint venture to Comcast (CMCSA) for $16.7 billion. Additionally, GE Capital ("GECC") will sell NBCU-owned property to Comcast for $1.4 billion cash, bringing the total purchase price to $18.1 billion. GE will receive $13.4 billion cash, $4 billion in Comcast guaranteed debt, and $0.7 billion of preferred stock as payment. The transaction is expected to close in late March and has been approved by the boards of directors of both companies.
The sale of the remaining stake in NBCU ahead of schedule is a key step in the simplification process and accelerates the timeline for exiting non-core business, reinvesting in the core, and returning cash to shareholders. GE now plans to return $18 billion cash to shareholders in 2013, 50% more than the previously announced $12 billion, with the majority of the increase driven by a greater commitment to share repurchases. GE's Board increased GE's share repurchase authority to $35 billion, with ~$23 billion of authorization still outstanding. The company now expects to allocate $10 billion to its share repurchase program in 2013 vs. $4 billion previously.
The company does not expect these transactions to materially impact previously issued 2013 framework and anticipates EPS impact to be neutral. Pre-tax industrial gains from the sale of NBCU will be offset by restructuring expenses. In addition, the management expects to offset the lost earnings through a lower share count and margin benefits associated with greater cost reduction.
GE has substantial non-core assets, particularly within GE Capital, and it is encouraging to see these being divested at a decent price. Comcast and GE were expected to operate NBCU as a joint venture until at least mid-2014, and Comcast could have continued the joint venture through 2018; however, news of the early exit shouldn't come as a surprise. GE had earlier signaled its preference to accelerate the original timeframe to sell the remainder of its stake.
We have a buy rating on GE. We believe the company's capital crisis is behind it and the resized business should continue to post handsome growth in profits. The company has a sector leading dividend yield of 3.3%. The company is also trading at cheap valuations compared to the industry. GE has a price-to-earnings ratio of 17.4 compared to the industry average of 20. It has price-to-book ratio of 2.0 vs. the industry average of 2.6. GE has price-to-sales ratio of 1.7, a little higher than the industry average of 1.5; however, its price to cash flow ratio of 8.4 is less than the industry average of 11.6. The company has a forward P/E of 12, and a PEG ratio of 1.2.
We are not surprised by the recent reduction in revenue outlook, since the peer companies have been talking about a U.S. slowdown for a few months now. But we are looking at a strong 2013, especially double digit industrial earnings growth. Industrial margins are on track to improve by 30 bps in 2012 and the company expects further 70 bps improvement in 2013. Moreover, with the recent acquisition, we think GE has an excellent opportunity to further improve Avio's margins.