Chris Marshall

GE: Too Tired For Growth, But Yield's Attractive

GE has about $57 Billion of its own real estate assets, but the 2nd Qtr press release lacked details to see what write downs had taken place, along with the lack of clarity on default rates in the finance divisions.

I do think that talk of $20 is a bit on the low side, my fair value is around $24- $26, but in an poor market, it may overshoot to the downside slightly.

Regarding the spin off of the appliance/consumer lighting division, why make the shareholders suffer when you can't sell it a reasonable price?

1) The new entity will almost certainly lose the AAA rating that GE has.

2) There will probably be a lot of covenants attached regarding the use of the GE brand, as Philips or Haier may buy it in the future, and extend the brand to cover some of their other product ranges.

3) Points 1 and 2 will cause the value of the new entity to drop significantly.

Regarding the approximately $ 200 Billion of securities maturing in 2008, the debt will probably be rolled over, but at what price?
This must affect the bottom line as credit rates are tight and will certainly be above the price that the new loans are replacing.

GE certainly has problems to face in the 2nd half, but large write downs were always unlikely this Quarter, or the CEO would have become the ex- CEO, it only just made the estimate without them. The full year estimate is still extremely optimistic.