There are two corporate giants operating in the world today: General Electric Co. (NYSE:GE) and Siemens AG (SI). Both are global conglomerates with businesses in a wide range of industrial, technological and financial industries. Since they both operate in very similar industries, and compete in the same markets, it can be difficult at times to decide which stock is a better investment. To compare the two companies I will use a variety of profitability and valuation techniques.
About the Companies
General Electric Co. is a diversified technology and financial services corporation based in the United States. Some of General Electric's key business segments consist of aviation, power generation, household appliances, GE Capital and a 49% stake in NBC Universal. Siemens AG is a German based integrated technology company predominately engaged in electronics and electrical engineering. Siemens' key business segments consist of industry, energy, healthcare, equity investments, and Siemens Financial Services. GE is the larger of the two firms and has a market capitalization of roughly $205 Billion, and annual revenues and Net Income of $147 and $13 Billion respectively. Siemens has a market cap of just $87 Billion, annual revenues and Net Income of $97 and $8 Billion respectively. General Electric generates the majority of their revenues, around 70%, from the United States, while Siemens has much more evenly distributed revenue streams with the majority coming from Europe.
Return on Assets
Return on Equity
Gross Profit Margin
Net Profit Margin
Examining the profitability metrics of the two companies we see that they both are very similar. Siemens does have an advantage in the return on asset and equity ratios. This simply means that Siemens is generating profit more efficiently as a percentage of their total assets and equity. Though Siemens has higher return ratios, General Electric does have a slight advantage in margins. Since strong margins will have a positive impact on the bottom line, I give General Electric a slight advantage in profitability over Siemens.
Price/ Book Value ratio
Looking at the comparison of stock valuations, it is easy to see that Siemens is the more undervalued of the two stocks. Starting with the basic valuation technique of the price to earnings multiple we see that Siemens is currently trading at a much lower multiple to its underlying earnings than General Electric. However the price to earnings ratio alone leaves out one important element- growth. When we factor in EPS growth and calculate the PEG ratio we see that Siemens, with its PEG ratio of well under 1, is still much more inexpensive than GE. Comparing the two stocks, though Siemens share price is higher, they are currently the more inexpensive of the stocks.
Both General Electric and its German counterpart, Siemens, have very similar businesses. They operate in just about the same business lines, with a few exceptions and the majority of their revenues come from industrial and energy segments. While Siemens generates more income in relation to their assets and total equity, General Electric has higher gross and net profit margins. I have a tendency to be more impressed by the profitability of General Electric due to the fact that their stronger margins will have a larger impact on the bottom line. Though General Electric may have stronger profit generating abilities, Siemens stock appears to be a better value just relying on a few valuation techniques. All things above considered, I give the advantage to General Electric Co. Though shares of GE are not as attractively priced as Siemens shares, I wouldn't consider them to be overpriced. GE also benefits from having a larger portion of revenues from the United States and a lesser portion from Europe than Siemens. With the U.S economy in the midst of recovery and the European economy in the brink of a recession, this will bode well for GE compared to Siemens. Siemens may be the cheaper stock, but GE has more efficient operations and will benefit from operating in a healthier economy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.