Two Views of GE

General Electric is one of the most widely owned stocks in the world.  And as a GE alumnus we are often asked about it.  At present there are two main schools of thought about GE and it’s outlook over the next year.

The bullish case argues that General Electric still has many growth opportunities, especially considering its $223B order backlog. Six out of seven of General Electric’s business segments posted earnings growth in Q2 compared to last year, with three seeing double-digit growth.  In addition, GE is one of the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), with a dividend yield of over 3%.

The neutral case is made Goldman Sachs:

“Our view is based on limited upside to 2013/2014 EPS coupled with a balanced risk/reward at this time. Specifically, we believe the 2013 margin targets are aggressive and a lower asset base at Capital will weigh on 2014 growth. Over the long term, we like GE’s position in attractive markets, simplification efforts and actions since the global financial crisis to make Capital stronger/safer. However, while GE appears well on its way to achieving its ENI reduction targets, we believe more can be done to improve its returns/ growth profile, making it a more attractive investment longer-term,”

With a P/E ratio of over 17, our view is that GE has limited upside potential.  We see the likelihood of an announcement of a dividend increase in the 4th quarter.  GE still has a lot of restructuring in its future as it sheds more of its GE Capital businesses.  This stock is not for the impatient.

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