This site requires a more recent version of Adobe Flash Player to function properly.
Go here to get Flash.
Trefis's graphical modelling tools require Flash, but here's a preview of some of the content you'll see once
Flash is enabled:
Investment Overview for General Electric (NYSE:GE)
GE's diverse product offering insulates the company's stock price from great sensitivity to any one particular market. However, we have identified key business segments that will be key to GE's future growth. Below are the key drivers of GE's value that present opportunities for upside or downside to our price estimate:
- Global Aviation Industry Market Size:
GE's Aviation division contributes over 18% of our estimate for GE's stock. Presently, GE Aviation has a market share of about 26.8% of the global aviation engines, equipments and services market. We forecast its market share reaching 27.3% by the end of our forecast period. GE has consistently invested in developing newer, more fuel efficient aviation engines. It is a tier-1 avionics supplier to the world's major aircraft manufacturers. The growth of the division will be largely driven by growth in the global aviation industry. We anticipate the global aviation engine and maintenance, repair and overhaul (MRO) industries to grow to $43.1 billion and $58.9 billion, respectively, by the end of our forecast period. If however, it rises to over $50 billion and $70 billion respectively then there could be a potential upside of about 3% to our price estimate.
- Energy EBITDA Margin:
GE's Energy division contributes around 21.3% of our estimate for GE's stock. Currently, GE's Energy division has EBITDA margin of around 16.4%. We assume that the deflationary conditions of 2008 and 2009, which resulted in lower raw material prices and therefore higher margins, will not be present in future periods. We expect the Energy EBITDA margin to normalize to about 14.8% by the end of the Trefis forecast period. However, if GE is able to leverage its global supply chain to source raw materials at better prices, or if global commodity prices remain depressed in the future, we could see EBITDA margins stabilize at around 16%. If this were to occur, it would provide an upside of about 4% to our price estimate. However, if commodity prices increase more than we are forecasting, the EBITDA margin could slip below 13% and would result in about 3% downside to our price estimate.
GE's Share of the Global Healthcare Market
Currently, GE's healthcare division has a share of about 6.7% of the global market for medical devices, equipment and technology services. We forecast market share to decline in 2013 and then remain stable over our forecast period. GE is a longtime leader in the medical device industry with an established track record and commitment to research and development. Emerging economies such as India and China are expected to be the next growth frontier for the healthcare industry as the penetration levels for various healthcare products and services in these markets are far below global levels. GE has an established presence in these key markets; should the company be able to capitalize on this growth potential while continuing to introduce innovative products to the market then its market share could reach 9% globally. If this were to occur, it would present an upside of about 6% to our price estimate. On the other hand, if GE were to lose out to local competitors in these markets and its global market share were to dip to 5%, it would result in a downside of around 4% to our price estimate.
General Electric (GE) is one of the largest and most diversified technology and financial services corporations in the world, with company revenues exceeding $147 billion in 2011.
GE's business offerings include products and services related to aircraft engines, power generation, water processing, household appliances, medical imaging, business and consumer financing and industrial products. GE serves customers in more than 100 countries and employs approximately 287,000 people worldwide.
The technology infrastructure division is the largest contributor to the firm's total value, while the energy infrastructure division is the second largest. The key drivers for these two divisions are:
GE's share of the global Oil & Gas equipment and services market
GE's Oil & Gas division manufactures equipment such as surface and subsea drilling and production systems, equipment for floating production platforms, compressors, turbines, turboexpanders, high pressure reactors, industrial power generation and a broad portfolio of auxiliary equipment. This division had a global market share of approximately 4.7% in 2012. We estimate that by the end of our forecast period GE's oil & gas market share will reach 5.8%. The emergence of horizontal drilling, improvements in fracture stimulation and 3-D seismic
technology to target and recover gas from shale and other reservoirs indicate a growing potential for equipment manufacturers. GE, with end to end manufacturing capability, is well positioned to capitalize on this growth.
Steady increase in global energy demand
The key growth drivers for a long-term increase in power generation are continued growth of the world population and sustained growth in purchasing power in emerging economies. Because of the environmental effects of coal-based energy, the newer capacity coming online is expected to be from cleaner sources of electricity such as natural gas, wind and solar. Governments worldwide have announced subsidies and tax benefits to support power generation through newer and cleaner sources such as wind, solar and nuclear. Huge investments are also expected to strengthen the weak power transmission and distribution infrastructure in emerging economies.
Improved outlook for the global aviation industry
We expect that an eventual recovery in global economic conditions will lead to healthy growth in passenger and cargo traffic, and consequently growth in demand for commercial aircraft. The recently released aircraft delivery statistics from Boeing and Airbus show that the delivery numbers have been stable from last year's numbers. This shows that the recovery signs in the global aviation industry are not weak and a turnaround may be near. The low cost carrier, or LCC, is a fast growing segment in the short/medium haul markets and is increasingly becoming the faster alternative to other modes of transportation such as railways. LCC growth is primarily a consequence of increased liberalization in the commercial aviation industry which has reduced barriers to entry for regional and private players. This is especially true for emerging economies such as Asia where barriers to entry were previously very high. We expect regulatory hurdles to decline further in Asia in the future, which should pave the way for additional growth in LCC fleets in these countries, thereby creating additional demand for commercial aircraft in future years.
Increasing demand from China and India will drive growth
China and India’s rising need for resources to fuel their economic growth will drive demand for energy, oil & gas, infrastructure and mining equipment. China has already experienced strong growth in mining equipment demand, a direct result of greater investment in its local mining industry. For example, China's coal output more than doubled from 1998 to 2008, reflecting the nation's burgeoning energy needs.
Like China, India has experienced major growth in energy demand in recent years. Additionally, compared to China, India has a substantial need for infrastructure such as roads and ports, as well as energy generation, transmission and distribution. The Indian government has estimated that the industry will need investments to the tune of around $400 billion by 2012. These growth prospects will provide significant opportunities for GE in the future, as it has expertise in nearly all aspects of infrastructure equipment and finance. The company will also benefit from its established presence in these markets.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
View All Help Topics