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Unscrambling Monday's EggOctober 30, 2000 | In Focus Archive »General Electric (NYSE: GE)Putting
GE through the Chicks' Dozen Ok, I just have to ask. am I the only Chick that thought GE was acquiring a ham company when they recently announced the proposed merger with Honeywell? Sometimes a little research goes a long way! We decided to throw GE into the frying pan today since it has been a hot topic on the news lately. (Please check out the addendum regarding the Honeywell acquisition at the end of this article.) 1. Buy What You Know Who doesn't know GE?? We've all seen a light bulb haven't we? And I bet you've tuned into the NBC television network on occasion, even if they don't air "Millionaire" or "Survivor". Actually, those examples are only part of their story.a very small part. GE is about as diversified as any mutual fund. True story! It has lit up the marketplace with its ability to make money in a range of industries, including appliances, lighting products, aircraft engines, plastics, broadcasting, engineering and financial services. What really amazes me is how the percentages of all those subsidiaries break down on their consolidated sales reports. Would you believe GE Appliances only accounts for 6%? You mean selling refrigerators isn't their main concern? Who knew GE Capital Corporation accounts for 40%! Wow! That's right, if you need to finance it, charge it, or insure it, General Electric Capital will come to the rescue, offering personal and business financing worldwide. 2. K.I.S.S. Let's keep it real simple. Television host of the Olympic Summer Games 2000, parent company to CNBC (the "stock ticker" channel), light bulb maker, kitchen appliance and laundry equipment maker (We LOVE our GE Profile side by side refrigerator/freezer with water and ice in the door!), credit card issuer, life insurance provider, maker of plastics and medical imaging equipment as well as transportation equipment like aircraft engines and locomotives! Yowza, and that wasn't even a comprehensive list! 3. Industry The industry that GE is listed under is "Conglomerates". How funny is that? If you look up the word conglomerates in the dictionary it says: a company consisting of a number of subsidiary companies in unrelated industries. Well, that pretty much sums up General Electric all right! Given the list of subsidiaries I have provided above, obviously GE has no one competitor. Rolls Royce (not the luxury car maker) is the world's 2nd largest aircraft engine maker behind GE, other competitors include the #1 consumer electronics maker, Matsushita, and electronics giant, Siemans. 4. Leader in Its Field How about this for leading. if ranked independently, nine of GE's businesses would be on the Fortune 500! Taken together, GE landed the number one seat in both 1998 and 1999 on the Forbes Super 100 list. This year (2000), Business Week named them number one on their 25 Best Board of Directors list. And in the last 3 years running, Fortune magazine has named them America's Most Admired Company. Wow. That's probably enough said, but here's another little FYI: GE Aircraft Engines now rule the runway as the world's largest producer of engines for commercial and military planes. I had no idea. 5. Repeat Profitability Every time you tune into "Law & Order", "Days of our Lives", "The Today Show" or any other of the myriad of shows on NBC, CNBC or MSNBC, GE is collecting advertising revenue. Or think about all the interest being collected by GE Capital. Consumer debt is at an all time high, I don't think people are going to stop charging on their credit cards any time soon. And we all know a light bulb doesn't last forever! NOTE: For the following equations, I used Quarterly Report figures for the quarter ending 6/00. All numbers were not yet available for the most recent quarter ending 9/00. The numbers used were pulled from both MSN.com and GE's website. 6. Gross Margins Remember we want these above 50%, well GE's got 'em! GM = 59.81% (Sales - Cost of Goods Sold) / Sales (32862 - 13207) / 32862 = 19655 / 32862 = .5981 = 59.81% 7. Net Margins We want these above 8%, again GE passes the bar. NM = 10.3% Net Income / Sales 3378 / 32862 = .1027 = 10.3% 8. Cash to Long Term Debt We would like our companies to have at least as much cash as they do debt. GE stands up to the test with 1.24x cash vs. long-term debt. Cash* / Long Term Debt *cash, including marketable securities (12085 + 84419) / 77603 = 1.24x
GE's Flow Ratio appears out of control at 5.83, well above our 1.25 criterion. (Note: When the Chicks purchased GE, short-term debt was not figured into this equation, and thus its ratio was well in line with our standard. We also loved the diversity that GE stock brings to any portfolio!) (Total Current Assets - Cash*) / (Total Current Liabilities - Short-Term Debt) *Cash, including Marketable Securities (284766 - (12085 + 84419)) / (152040 - 119737) = 188262 / 32303 = 5.83 10. Increasing Growth Revenues for FY 99 = 110832 Revenues for FY 98 = 99820
110832 - 99820 = 11012 11012 / 99820 = .11 x 100 = 11% SALES INCREASE For the past 12 months, GE's stock price has increased 15.8%. Considering the hugeness of the company and the volatile market, this is quite a feat! Taking into consideration all stock splits, one GE share purchased before 1926 is now worth 1,536 shares. Quarterly dividends have been paid every quarter since 1899 and have increased every year since 1975. Do ya think it was too much to ask for great-grandfather Orville to have bought me just one measly share of GE stock? I guess he thought so. or more likely, who knew? What a terrific illustration of the power of long-term investing! 11. Strong Management and History I was going to make a joke that GE has been around so long, Thomas Edison was its first CEO. Actually, I wasn't so far off! Believe it or not, the Edison Electric Light Company (established by Thomas A. Edison in 1878) merged with the Thomson-Houston Electric Company in 1892, creating General Electric Company. GE is the only company listed in the Dow Jones Industrial Index today that was also included in the original index in 1896. John F. Welch, (Jack) is one of the most respected CEO's in corporate America today. He joined GE in 1960 and was elected Vice President in 1972 and Vice Chairman in 1979. Get this. In 1981, he became the eighth Chairman and CEO in the Company's 117-year history!! Jack Welch will step down from his 20 year run as CEO at the end of 2001. He is committed to see through the Honeywell transition. He is also committed to doing the best job ever of picking a successor. Since 1991, he has vowed to work on it every day. Wow, now that's foresight! Feel free to stay tuned to the Chicks Message Board as we're sure to be following this process in the months to come. GE has come a long way with e-commerce in a very short time. Only in early 1999 was e-business considered a major initiative. They were definitely late upon arrival to the party, but boy have they shown some life since they got there! Why did they jump on the bandwagon so late you ask? Simple, same reason many of us hesitated to jump online -- computer illiterate or nervous about that thing called the "internet superhighway". Jack Welch was no different. Thankfully, they got over themselves and opened their eyes to the possibilities. Within days things started happening across all 20 of GE's key businesses. Their plastics company, Polymerland turned its $10,000 a week web business into $2 million a day. The same dynamics were happening at their power plant. 12. Buy on Sale 52-Week Low: 38.2 52-Week Average: 49.4 Current stock price (as of 10/30/00): 54.0 Not on sale! ADDENDUM Just a few quick facts to update you about the proposed Honeywell deal. Feel free to read more at GE's website. First of all, Honeywell does not make honey-glazed ham. Like GE, Honeywell is a diversified technology and manufacturing leader, serving customers worldwide with avionic products and services; control technologies for buildings, homes and industry; automotive products; power generation systems; specialty chemicals; fibers; plastics; and electronic and advanced materials. I know, blah, blah, blah. suffice to say Jack Welch feels they are the perfect complement to GE. They have a 90% overlap in the industries that they do business in, but not one product of GE's competes with Honeywell's and vice-versa! This is GE's largest acquisition in its company's history and their goal is to make it their most successful. To give you an idea of size. GE operates in more than 100 countries, employing 340,000 people. Honeywell operates in 95 countries, employing 120,000 people! The new "GE-Honeywell" brand name will be used in some key product lines. Good idea, huh? Honeywell shareholders will receive GE stock. Michael Bonsignore, CEO of Honeywell, will join GE's board of directors, as will two additional Honeywell directors. Each company has approved the $45 Billion merger agreement. Following regulatory approval and the approval of Honeywell shareowners, the merger is hoped to be completed in early 2001. Wow. and to think how long it takes me to buy a new car! |
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