Seriously, how does General Electric (NYSE:GE) do it? This darn $29 billion market cap behemoth just keeps growing. Of all the companies in the stock market, I can’t think of another that manages to execute organically time and time again, across multiple global divisions. And in periods when it falters, management pulls it back together and keeps going.
GE has so many assets that it has the capacity to reach far and wide, but also to reach deep. There’s a lot happening in Latin America, particularly Costa Rica and Colombia. Yet even beyond those countries, GE can extend into emerging markets because it has so much cash on hand and generates so much cash flow from operations.
That also gives it pricing power, in the event competitors want to play in the same markets, GE can set the tone in a given region.
For years, investors relied on its finance division to generate growth, but its manufacturing divisions are going strong now. Jet engines, for example, did very well in the last quarter, with 22% growth. Particularly impressive is the backlog for orders, which rose 3.5% to $210 billion. Imagine running a company and knowing you have $210 billion in revenue coming in, virtually guaranteed — from just one division.
GE’s oil and gas unit, which handles energy services, was up 14%. The finance arm saw a 6% increase. Heck, every single division saw growth, leading to a 7.5% increase in profit
The big question is whether GE can continue to execute. I believe it can, certainly as long as Jeff Immelt runs the show. I also imagine many people think of lots of middle-aged men are running GE. By coincidence, I was eating at a restaurant counter the other night and sat next to a young woman who was probably around 30 or 31. She had an incredibly impressive resumé for someone so comparatively young.
It turned out that she’s a director at one of GE’s divisions, a leader in a particularly complex area of the company’s business. If this is the kind of person GE is hiring these days, I feel very comfortable with its future.
On the numbers side, GE is trading at about $22. The company has come in on earnings targets, or beaten them, for more than three years running. With GE’s 11% projected long-term growth and 3.6% dividend yield (which keeps growing), some insane amount of cash (over $130 billion) and free cash flow in the $20 billion annualized range, you have to be crazy not to consider it a buy.
It’s trading at 14x this year’s estimates, and even if you back out cost cuts and share repurchases, GE is hovering around a 1.3 price-to-earnings growth ratio. That’s a comparative bargain for a long-term hold of this caliber.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers financing, strategic investments, and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.