GE Coverage Launch $20: Energy & Technology Infrastructure Drive Value

We recently launched coverage of General Electric (NYSE:GE) with a price estimate of about $20 for the company’s stock, which is more than 20% ahead of the current price. General Electric is one of the largest and most diversified technology, infrastructure and financial services corporations in the world. It offers a wide range of products and services including aircraft engines, power generation, water processing, household appliances, medical imaging, business and consumer financing and industrial products. GE has operations in more than 100 countries worldwide and employs about 287,000 people. Its major competitors include Siemens AG (NYSE:SI), United Technologies Corporation (NYSE:UTX), and Halliburton Company (NYSE:HAL), among many other engineering and financial services companies.

See our full analysis for GE here.

We have broken down our analysis of General Electric into five main business segments:

1. Energy Infrastructure
2. Technology Infrastructure
3. NBC Universal
4. GE Capital
5. Home and Business Solutions

Energy and Technology Infrastructure Businesses Drive GE’s Value

Energy Infrastructure and Technology Infrastructure are the two key divisions, contributing more than 65% of our price estimate. The Energy Infrastructure division operates in the field of development, implementation and improvement of products and technologies that harness resources such as wind, oil, gas and water. Technology Infrastructure primarily consists of products and services offered to the aviation, healthcare and transportation industries.

International Growth in Global Aviation Industry Present Opportunity

The outlook for the global aviation industry has remained positive in spite of current economic conditions. The recent aircraft delivery numbers published by Boeing (NYSE:BA) and Airbus have held firm from the levels a year ago. Boeing, in its 2011-2030 market outlook, forecasts demand for 33,500 new aircraft valued at around US$4 trillion over the next 20 years. ^[1]

This demand will be largely driven by markets such as India and China as economic growth in those economies will lead to a rise in domestic business and leisure travelers. An estimate by Rolls-Royce and Clearwater Consulting estimates that more than 140,000 aircraft engines worth more than $800 billion will be delivered over the twenty year period ending in 2029. ^[2]

There are further opportunities for growth within the maintenance, repair and overhaul (MRO) market. The global MRO industry is expected to reach US$50 billion by 2015 and US$65 billion by 2020. ^[2] Original equipment manufacturers (OEMs) such as Boeing and Airbus have started to focus more on their core competencies (aircraft design, architecture, final assembly and delivery), preferring to outsource more to their suppliers. With aircraft technology becoming more complicated, specialized services are required to manage MRO requests efficiently. Over the next few years, we expect that GE and other suppliers will benefit greatly from the shift to MRO outsourcing.

We believe that GE’s strong product portfolio, longstanding relationships with all major aircraft manufacturers and global footprint will allow the company to attain a greater share of the global aviation engines and equipment market.

Commitment to R&D, Clean Energy Will Allow For Energy Market Share Growth

GE’s Energy Infrastructure division provides products and services related to energy production, distribution and management. The business designs and manufactures products such as gas turbines and generators, wind turbines, solar panels, surface and subsea drilling and production systems, high pressure reactors, and industrial power generation equipment, among many others.

GE also continues to invest in market-leading technology and services. Historically, the company has invested 4-5% of segment revenue into research and development, and the company’s strong existing portfolio and commitment to developing producing innovative products should allow for market share growth. Worldwide energy demand continues to increase, and the company’s advanced products and commitment to clean energy sources should allow for significant revenue growth in the future.

In addition to the infrastructure businesses, GE’s diversified presence across the financial, consumer and media industry also bodes well for its future growth prospects. Because it is so well diversified across various business segments, GE’s stock price is generally not sensitive to market changes in any one industry.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Current Market Outlook, Boeing [↩]
2. Aerospace Global Report, IMAP [↩] [↩]