Summary
- The spinoff of Healthcare and Oil and Gas is assumed to provide cash of $75 - $100 billion. However, the CEO of GE, Larry Culp, believes the number is $44.
- The valuation of the GE segments is difficult to understand. Renewable Energy is valued at $15 billion, which is a P/E of 100. A P/E of 20 yields a value.
- Power had a negative operating income of 12.9% of sales or $0.9 billion in the fourth quarter alone. It faces the need for more facility closings and employee terminations.
- The spinoffs will not produce a debt free company. GE will also continue to pay non-operating benefit costs of $2.7 billion per year. It is a sell.
GE Stock Price
Source: Finbox.io
GE (GE) will likely recover but it will be a long slow struggle. The recent article, “GE: Undervalued By About $68 Billion” by Victor Dergunov on February 7, valued GE’s remaining segments and cash from spinoffs at $231 billion. He did not explain how he developed these estimates. He is very optimistic expecting Power to stabilize this year and possibly begin growing again by 2021. This appears to color his numbers. A valuation based on income and GE estimates produces a value of $148 billion, which is an $83 billion difference. A detailed explanation of how this value was developed is provided. However, valuations are opinions. To help the reader decide which valuation is a reliable guide to investment, both valuations for each segment are compared. GE’s recovery will be slow and risky, so it is not going to produce a sharp increase in price in the next year. It is a sell.
