Siemens CEO Affirms Company Guidance

Includes: APWR, GE, SIEGY
by: Wisdom vs. Information

Siemens (SI) affirmed guidance of at least 6.6 billion euros, 9.24 billion dollars, earnings for the fiscal year ending September. Last year, SI's earnings were drastically reduced by divestiture. Sales have been a little lower this year, but restructuring, including getting rid of product lines and closing factories, has resulted in a significant drop in costs the last two quarters; SG&P are expected to be reduced 1.68 billion dollars for the year. SI's PM improved to 5% in the last quarter and is expected to increase -- SI's goal is for its PM to equal [[GE]'s (unlikely, but at least the company is trying). SI expects Health and Energy divisions to continue to outperform, but expects the Industrial division to disappoint. SI has a jaw dropping backlog of wind generator orders.

On the negative side, SI's five year PM has been four percent; and, SI's expected sales now comprise of 25% green energy. Part of the cost savings of green energy that Europeans count is a dollar amount on carbon savings. If Europeans become disillusioned about fighting carbon or governments become broke, that product mix could quickly become a liability. SI is getting bad publicity for corruption related to the Greek Olympics; I am no expert, but I doubt that will materially affect SI's earnings. For my portfolio, I need to see SI increase its PM before I buy.

With 866.4M shares outstanding, EPS for the fiscal year would be $10.66. At $76 current share price, that works out to a PEx of 7.126. At S&P's conservative PEx of 9.0, SI would be valued at $95.94.

Without any guidance, what follows is strictly my opinion: I think this bodes well for GM. GM's Energy and Health should both be doing as well as SI, and Immelt's comments on improving credit markets tell me that GECS should at least continue to "break even" (in the twisted accounting sense, of course). When I value GECS, I assume that with ~$350B in debt they will "break even" for the next 20 years; on the other hand, I would not be surprised if GE did what companies often do during a downturn: excessively write down risky loans/receivables so that the company looks even better on the other side. The rest of GE expects $1.00 EPS; given a PEx of ~13.5, a large number of people clearly think that GE will surprise. I do not have ANY numbers, but GE's Industrial division may surprise with APWR in China; GE is also heavily invested in the smart grid and will no doubt make out (I mean that in the piratical sense) with millions of stimulus money -- when the building begins.

On the other hand, a large number of people feel like GE burned them over the last few years with excessive M&A, dishonest guidance, reduced dividends and overly-aggressive lending at GECS. You should read reviews before buying.

Long term, both SI and GE will benefit from offshore oil drilling, and alternative energy including wind turbines, solar modules, and smart grid including energy storage; as distributed power becomes grid-competitve, I expect both of these companies to be significant providers of systems.

Disclosure: Long GE & APWR

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