General Electric Company's (NYSE:GE) stock underperformed the market in the last years; since the beginning of the year, GE's stock has lost 5.3% while the S&P 500 index has increased 4.3%, and the Nasdaq Composite Index has risen 1.8%. Moreover, since the start of 2013, GE's stock has gained only 26.5% while the S&P 500 index has increased 35.2%, and the Nasdaq Composite Index has risen 40.8%. Nevertheless, General Electric is generating much cash and it returns value to its shareholders by rich dividend payments and by stock buyback, and its earnings growth prospects are good. In my opinion, although GE's stock is not a bargain right now, it should be included in a diversified large cap dividend stocks portfolio.
General Electric Company operates as an infrastructure and financial services company worldwide. It has eight segments: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Home & Business Solutions and GE Capital. The company was founded in 1892 and is headquartered in Fairfield, Connecticut.
The table below presents the valuation metrics of GE, the data were taken from Yahoo Finance and finviz.com.
General Electric's valuation metrics are medium; the forward P/E is pretty low at 14.59, but the Enterprise Value/EBITDA ratio is high at 22.60, and the debt to equity is very high at 2.89.
Latest Quarter Results
On April 17, General Electric reported its first-quarter 2014 financial results, which beat EPS expectations by $0.01 (3.10%) and missed Street's consensus on revenues. The company reported first-quarter 2014 operating earnings of $3.3 billion, with operating earnings per share of $0.33, down 15% from the first quarter of 2013. Excluding the 2013 NBCUniversal impact and restructuring and other charges, operating EPS was up 9% from the year-ago period. GAAP earnings from continuing operations were $3.0 billion, with earnings per share of $0.29, down 17%. Revenues were $34.2 billion for the quarter, down 2% from the year-ago period.
In the report, GE Chairman and CEO Jeff Immelt said:
We had strong results in the first quarter in most of our markets, including Power & Water, Aviation, Oil & Gas, and GE Capital. The environment was generally positive, and we executed on our operational priorities with strong organic growth, margin enhancement, and solid cash generation.
Dividend and Share Repurchase
General Electric had cut its dividend payment in the years 2009, 2010, as a result, of the 2008-2009 global financial crisis, but had started to increase its dividend payment again in 2011. The forward annual dividend yield is at 3.31%, and the payout ratio is at 62%. The annual rate of dividend growth over the past three years was high at 18.2%, and over the past five years was negative at -9.3%.
Source: Charles Schwab
General Electric generated $1.7 billion in cash flow from operations in the first quarter. GE ended the quarter with $87 billion of consolidated cash and cash equivalents. The Company returned $3.4 billion to share owners in the first quarter, including $2.2 billion of dividends and $1.2 billion of stock buyback.
A comparison of key fundamental data between General Electric and other industrial goods companies is shown in the table below.
General Electric has the highest Enterprise Value/EBITDA ratio and the highest debt to equity ratio among the stocks in the group. However, it also has the highest dividend yield at 3.31%.
The charts below give some technical analysis information.
The GE stock price is 0.22% below its 20-day simple moving average, 0.83% above its 50-day simple moving average and 4.04% above its 200-day simple moving average. That indicates a short term and mid-term trading range, and a long-term uptrend.
Chart: TradeStation Group, Inc.
The weekly MACD histogram, a particularly valuable indicator by technicians, is at 0.0357, which is a neutral signal (a rising MACD histogram that is crossing the zero line from below is considered an extremely bullish signal). The RSI oscillator is at 54.91, which do not indicate oversold or overbought conditions.
Analysts' opinion is divided, among the fourteen analysts covering the stock, three rate it as a strong buy, four rate it as a buy, and seven analysts rate it as a hold.
TipRanks is a website that ranks experts (analysts and bloggers) according to their performance. According to TipRanks, among the analysts covering GE stock there are only five analysts who have the four or five star rating, three of them recommend the stock. On May 05, Morgan Stanley analyst Nigel Coe reiterated an Equal-Weight rating and $28.00 price target on General Electric Company. In the report, Nigel Coe noted, "The proposed Alstom transaction, like any large cross-border acquisition, carries clear risks; but we think potential EPS accretion and IRR should more than compensate." I consider Mr. Coe's analysis valuable, since he has 4-Star rating from TipRanks for the accuracy of his previous calls.
On April 30, General Electric and Alstom SA (OTC: OTCPK:OTCPK:AOMFF) announced that GE has submitted a binding offer to acquire the Thermal, Renewables and Grid businesses of Alstom consisting of $13.5 billion enterprise value and $3.4 billion of net cash, totaling $16.9 billion. The French company Alstom is a builder of power plants, energy transmission equipment, and high-speed passenger trains. The Alstom board of directors has positively received GE's offer and has appointed a committee of independent directors led by Jean-Martin Folz to review the transaction by June 02. If this review concludes positively, an exclusivity period beginning no later than June 02, will be granted and the next steps will include Works Councils consultation, Alstom shareholder approval in a shareholder meeting, and customary regulatory approvals.
If the deal is approved in its current form, despite some objection from the French government, it can provide to GE an excellent return on capital. According to General Electric:
This is a strategic transaction that furthers GE's portfolio strategy. Power & Water is one of our higher growth and margin industrial segments and is core to the future of GE. Alstom, like GE, is a company built on engineering, innovation and technology. We respect and value the deep industry and technology expertise of Alstom employees and expect them to add to our proven track record of developing talent and leadership in France and globally. Alstom's businesses are very complementary in technology, operations, and geography to our power and grid businesses. We expect a collaborative and prompt integration that will yield efficiencies in supply chain, service infrastructure, commercial reach, and new product development. We expect these actions will generate more than $1.2B in annual cost synergies by year five and the transaction will be immediately accretive for GE shareholders.
General Electric will continue to benefit from the improvement in the economy, according to the company, the environment is positive. The company is generating much cash and it delivers large sums of cash back to shareholders, during the first quarter the company generated $1.7 billion in cash flow from operations. GE ended the quarter with $87 billion of consolidated cash and cash equivalents. The Company returned $3.4 billion to share owners in the first quarter, including $2.2 billion of dividends and $1.2 billion of stock buyback.
In my opinion, GE's stock should be included in a diversified large cap dividend stocks portfolio, and I will take advantage of any weakness to buy the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.