General Electric Company (GE)

Discount cash flow analysis

Buy Undervalued by 38.4%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for General Electric Company, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Price history

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $37.03 $35.67 $34.36
Terminal Growth% 0 $37.53 $36.16 $34.83
  +1% $38.04 $36.66 $35.31

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of $28.35 (undervalued by 8.54%) - 1 day ago
  • mvacca created a new valuation of $16.13 (undervalued by 4.88%) - over 3 years ago
  • pbemech created a new valuation of $14.90 (overvalued by 6.29%) - over 4 years ago
  • GordonGekko created a new valuation of $14.68 (overvalued by 8.88%) - over 4 years ago
  • baselsina created a new valuation of $18.75 (undervalued by 16.39%) - over 4 years ago
  • jtwdc1 created a new valuation of $0.00 (overvalued by 100.0%) - over 4 years ago
  • GordonGekko created a new valuation of $0.00 (overvalued by 100.0%) - over 4 years ago
  • Yuvraj created a new valuation of $63.82 (undervalued by 376.27%) - over 4 years ago
  • Yuvraj created a new valuation of $12.76 (overvalued by 4.78%) - over 4 years ago
  • Yuvraj created a new valuation of $7.15 (overvalued by 46.64%) - over 4 years ago
  • natet1 created a new valuation of $12.82 (undervalued by 18.05%) - over 4 years ago
  • SethWellbourne created a new valuation of $0.00 (overvalued by 100.0%) - over 5 years ago
  • jtmoney15 created a new valuation of $10.76 (undervalued by 11.39%) - over 5 years ago
  • GordonGekko created a new valuation of $10.76 (undervalued by 11.85%) - over 5 years ago
  • dweis created a new valuation of $37.74 (undervalued by 135.58%) - over 5 years ago
  • wyomingkid created a new valuation of $63.76 (undervalued by 226.81%) - over 5 years ago
  • Derek created a new valuation of $21.62 (undervalued by 14.03%) - over 5 years ago
  • GordonGekko created a new valuation of $20.88 (overvalued by 18.12%) - over 5 years ago
  • peypar created a new valuation of $11.23 (overvalued by 55.52%) - over 5 years ago
  • GordonGekko created a new valuation of $24.95 (overvalued by 6.27%) - over 5 years ago
  • Ashkat created a new valuation of $46.68 (undervalued by 66.12%) - over 5 years ago
  • KiwiEMH created a new valuation of $26.49 (overvalued by 7.73%) - over 5 years ago
  • GordonGekko created a new valuation of $27.01 (overvalued by 1.35%) - over 5 years ago
  • TheCrunchBlog created a new valuation of $36.16 (undervalued by 32.07%) - over 5 years ago
  • GordonGekko created a new valuation of $29.39 (undervalued by 7.34%) - over 5 years ago
  • GordonGekko created a new valuation of $31.30 (undervalued by 0.94%) - over 5 years ago

Comments

Has the negative sentiment on GE gone too far?

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/06/has-the-negative-sentiment-on-ge-gone-too-far/

GE grew revenues from US$134.3 billion in 2004 to US$172.7 billion in 2007 – 8.75% compound annual growth rate. Our assumptions of revenues for the next three years are US$187.5 billion in 2008 growing to US$206.5 billion in 2010 – 6.1% compound annual growth rate. We have projected EBITDA margins increasing from 23.5% in 2008 to 24.5% in 2010.

We have used a terminal growth rate of 2.5%. We calculated this terminal growth rate based on year three growth (2009 to 2010) of 5% dropping to a 2% stable growth rate over the next ten years.

We have used a WACC (discount rate) of 6.5%. The WACC (discount rate) has a material impact on a discounted cash flow valuation (as does the terminal growth rate). We think this WACC of 6.5% is reasonable but recognise that the actual number could be as low as 5.5% or as high as 7.5-8%.

We used a terminal capital expenditure number of US$4.0 billion.

By TheCrunchBlog, over 5 years ago

Analysis of GE's lending issues impact on the company

This is a great analysis of GE's issues with their substantial lending operations:

http://www.nytimes.com/2008/09/22/business/22ge.html?pagewanted=1&_r=1&ref=business

“With the tsunami sweeping over the financial sector, it is unrealistic to expect that G.E. will not get wet.”

By GordonGekko, over 5 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 758,717
Net Debt (Long-term borrowings less cash): 498,369
Equity Value: 272,907
Number of Shares Outstanding: 9,967,000,000
Calculated value per share: $36.16

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.


Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.


CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.