Foolish Forecast: GE Is Still Too Cheap

You know that another earnings season is dawning when General Electric (NYSE: GE) reports results. That time is now, with GE's second-quarter release scheduled for Friday morning.

Read up on the first quarter's disappointment, then get back here to see if the subsequent 25% price drop was justified. (In summary: Nope, it wasn't.)

What Fools say:
Here's how GE's Motley Fool CAPS rating stacks up against some of its peers and competitors:

	Market Cap (billions)	Trailing P/E Ratio	CAPS Rating (out of 5)
General Electric	$279.7	12.7	****
Citigroup (NYSE: C)	$87.4	NM	**
Walt Disney (NYSE: DIS)	$57.1	13.4	****
3M (NYSE: MMM)	$48.6	13.6	*****
Honeywell International (NYSE: HON)	$37.4	15.0	****

Data taken from CAPS on 07/09/2008. NM = not meaningful.

It is tough to pin GE down to any particular industry, so its peer group includes big banks, entertainment giants, and industrial conglomerates. On that note, CAPS player LEETHEACE gives the stock a thumbs-up because it's a "quality stock at fire sale prices. Almost like holding a mutual fund."

On the other hand, All-Star CAPS player mevanzzz sees trouble ahead, based on, among other factors, the housing slowdown and fewer "orders for new planes as older planes are idled during the airline industry's race to reduce capacity."

What management does:
The mighty giant has not gone unscathed through the brutal spring of 2008. The sales growth engine may have been restarted, but due to compressed margins, the profits have not followed suit.

Margins	12/2006	3/2007	6/2007	9/2007	12/2007	3/2008
Gross	39.3%	39.8%	39.9%	39.8%	38.9%	38.0%
Operating	15.6%	16.1%	16.3%	16.0%	15.2%	14.4%
Net	13.8%	13.6%	13.5%	13.5%	13.1%	12.7%
FCF/Revenue	9.8%	8.1%	12.1%	12.3%	16.5%	17.9%

Growth (YOY)	12/2006	3/2007	6/2007	9/2007	12/2007	3/2008
Revenue	10.9%	4.2%	7.7%	10.0%	13.4%	12.9%
Earnings*	11.7%	7.4%	12.6%	14.4%	15.9%	7.9%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
* Earnings from continuing operations

One Fool says:
A company with GE's girth, diversity, and proven longevity should really not swing too low (sweet chariot). Granted, a deep, lengthy recession would hurt this conglomerate just as it would hurt everyone else, but I still don't believe that GE should be worth 35% less today than it was last October. Management nudged its estimates down a bit last time around, and the lowered expectations should not be too hard to meet.

Copyright © 2008 Universal Press Syndicate.