Advertisement
Canada markets close in 1 hour 26 minutes
  • S&P/TSX

    22,180.85
    +73.77 (+0.33%)
     
  • S&P 500

    5,253.44
    +4.95 (+0.09%)
     
  • DOW

    39,777.28
    +17.20 (+0.04%)
     
  • CAD/USD

    0.7386
    +0.0014 (+0.19%)
     
  • CRUDE OIL

    83.16
    +1.81 (+2.22%)
     
  • Bitcoin CAD

    95,884.94
    +3,045.62 (+3.28%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • GOLD FUTURES

    2,241.60
    +28.90 (+1.31%)
     
  • RUSSELL 2000

    2,123.55
    +9.21 (+0.44%)
     
  • 10-Yr Bond

    4.2020
    +0.0060 (+0.14%)
     
  • NASDAQ

    16,384.38
    -15.14 (-0.09%)
     
  • VOLATILITY

    12.98
    +0.20 (+1.56%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • CAD/EUR

    0.6841
    +0.0036 (+0.53%)
     

Is It the Right Time to Invest in GE Stock at Current Multiples?

Is It the Right Time to Invest in GE Stock at Current Multiples?

Will Restructuring Initiatives Put GE Back on Growth Trajectory? (Continued from Prior Part) ## Attractive valuation Last year’s ~57% plunge in General Electric (GE) stock has made its valuation attractive in the industrial sector. At current market prices, GE trades at a PE ratio of 9.96x, a significant discount to the industrial sector’s (XLI) PE ratio of 24.32x. The stock also trades at a lower PE multiple to its top peers. The company’s main competitors such as Honeywell International (HON), 3M Company (MMM), and United Technologies (UTX) are trading at PE multiples of 16.77x, 19.50x, and 14.65x, respectively. Furthermore, based on analysts’ next-12-month earnings projections, GE is trading at a discount to competitors. Forward PE ratios for GE, HON, MMM, and UTX are pegged at 8.91x, 16.70x, 17.68x, and 13.71x, respectively. The PE valuation multiple is used widely because of its simplicity, but the measurement has some flaws. For example, earnings of a company can be easily manipulated, thus making the ratio meaningless. Therefore, we’ll compare these companies based on EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. Currently, GE has an EV-to-EBITDA ratio of 31.54x, which is higher than HON, MMM, and UTX’s EV-to-EBITDA multiple of 10.87x 15.10x, and 10.87x, respectively. However, based on analysts’ next-12-month EBITDA estimates, GE is trading at a discounted EV-to-EBITDA multiple against HON and MMM, while at a premium to UTX. Forward EV-to-EBITDA ratios of GE, HON, MMM, and UTX are pegged at 9.40x, 11.85x, 12.38x, and 8.71x, respectively. ## Analysts’ rating and target price GE has received a consensus “hold” recommendation from analysts polled by Reuters. Of the 20 analysts tracking the stock, four recommended a “strong buy,” five recommended a “buy,” nine recommended a “hold,” and the remaining two recommended a “strong sell.” Analysts have lowered their target price and EPS estimates for General Electric since its third-quarter results. The stock’s current 12-month consensus target price of $12.37 is ~20% lower than its target price of $15.50 on October 30, the day it reported its third-quarter results. The mean estimate for GE’s 2018 EPS fell to $0.71 from $0.83 on October 30. The company’s 2019 EPS estimate has been revised downward to $0.85 from $0.93. Browse this series on Market Realist: * Part 1 - GE Was Worst Performer in the Industrial Sector Last Year * Part 2 - Will Restructuring Initiatives Bring GE Back to Growth Trajectory? * Part 3 - Aviation Segment to Drive GE’s Revenues in 2019