With General Electric stock up 32% in the last month, it’s time to take a pause and question whether it remains a good value or not. To shed some light on this question, let’s take a look at each GE industrial segment on an individual basis and then bring them together to see what the company could be worth.
General Electric company
If you are thinking of investing in GE, the first thing you have to accept is that patience is necessary. The fact is, GE won’t look anything like a good value on a conventional basis for a few years yet. As a rough rule of thumb, you could take the fair value of a multi-industry industrial stock to be around 20 times its industrial free cash flow (FCF). For reference, FCF is the yearly flow of cash that can be used to pay down debt, initiate buybacks, or pay dividends.As you can see below, GE isn’t anywhere near that figure now. Unfortunately, the coronavirus pandemic hit GE very hard due to its heavy exposure to commercial aerospace. As such, Wall Street analysts are forecasting a cash outflow of $1.4 billion in 2020, and then just $2.4 billion in 2021 and $4 billion in 2022. To put these figures into context, GE’s current market cap is $88.2 billion — meaning it won’t trade on 22 times FCF until the end of 2022.
