General Electric(GE)

John MyersRob Park

Matt Richter

Tuesday, November 22, 2005

Company Overview

• General Electric (GE) Company was founded as a creation of a merger between Edison General Electric Company and Thomson-Houston Electric Company in 1892.

• GE Company is a diversified industrial corporation engaged in the development, manufacturing, and marketing of various products for the generation, transmission, distribution, control, and utilization of electricity

• Operations are held in approximately 100 countries worldwide.

• Headquarters based in Fairfield, Connecticut.

GE’s Business Segments (past)

• Prior July 5th, 2005, GE’s businesses operated within 11 different segments:

• Advanced Materials, Commercial Finance, Consumer Finance, Consumer and Industrial, Energy, Equipment and Other Services, Healthcare, Infrastructure, Insurance, NBC Universal, and Transportation

GE Market-Focused Businesses

• As of July 5, 2005, GE reorganized its 11 business segments into 6 market-focused core businesses:

• GE Industrial: provides a broad range of products and services throughout the world, including: appliances and lighting, plastics and silicones products, and equipment services

• GE Infrastructure: one of the world’s leading providers of fundamental technologies to developing countries, including: energy, oil and gas, and water process technologies

• GE Commercial Finance: provides loans, operating leases, financing programs, commercial insurance, and an array of other products and services aimed at enabling businesses worldwide to grow

GE Market-Focused Businesses

• GE Consumer Finance: a leading provider, under the GE Money brand, of credit services to consumers, retailers and automotive dealers around the world

• GE Healthcare: is a leader in the development of a new paradigm of patient care dedicated to detecting disease earlier and helping physicians tailor treatment for individual patients.

• NBC Universal: is one of the world’s leading media and entertainment companies in the development, production and marketing of entertainment, news and information to a global audience

Segments

Total Segment Profits

22%

4%

14%

9%10%

32%

2%7%

Advanced Materials, Consumer & Industrial

Energy

Insurance

Transportation

Healthcare

NBC Universal

Commercial and Consumer Finance

Infrastructure

and Equipment & Other Services

Consolidated 3-Year Revenues

14%

17%

10%

8%6%

24%

2%

19%

Energy

Insurance

Transportation

Healthcare

NBC Universal

Commercial and Consumer Finance

Infrastructure

Advanced Materials, Consumer &

Industrial and Equipment & OtherServices

Segments• Three segments whose operations have a significant effect on consolidated results

and reflect their changing economic environments are Energy, Insurance and Transportation

– Energy segment is well positioned for its markets in 2005 and beyond

– Overall, Transportation reported segment profit that grew $0.6 billion in 2004

• Results at two major segments, Healthcare and NBC Universal, reflected continued investment and growth over the last three years

– Healthcare showed strong growth as 2004 revenues and segment profit both rose about 50% since 2002

– The combination of NBC and VUE in 2004, and successful acquisitions of Telemundo and Bravo in 2002, has created a diversified world-class media company

• Most other operations achieved operating results in line with expectations in the 2002 to 2004 economic environment

– Solid core growth, disciplined risk management and successful acquisitions have delivered strong results in commercial and consumer finance

– Infrastructure, with growth platforms such as security and water treatment, continued to grow significantly through acquisitions

Market Outlook• Market is increasing through Global growth

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Europe Pacific Basin Americas Other Global Exports from the U.S.to external customers

Total

Consolidated Global Revenues (millions)

2002

2003

2004

Global Growth

• Global revenues rose 18% to $71.8 billion in 2004 • GE revenues in Europe rose 40% led by Healthcare and

NBC Universal reflecting the Amersham acquisition and the combination of NBC and VUE

• GE revenues in the Pacific Basin increased 13% led by Advanced Materials, Infrastructure and Energy.

• U.S. exports rose 35% on strong growth at Energy and Transportation

Ratios Comparison

General Electric 3M

Market Cap 382.50B 60.21B

Return on Equity (ROE) 17.62% 33.34%

Free Cash Flow $(44.63)B $3.76B

EPS 1.78 4.04

PE 20.34 19.63

Debt to Equity 3.187 .319

Operating Margin 14.81% 23.36%

***It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run.

Recent Headlines in 2005

• 6/27 - GE reorganizes business units – 11 units down to 6

• 7/8 - Growth and emerging markets conference– Int’l Operations generate half of GE revenue and

should grow 15% in 2005 and grow for 5+ years

• 10/14 - Reports 9% overall revenue growth– Consumer and Commercial Finance doing well

• 11/18 - Sells insurance business to Swiss Re, further divesting its insurance business

Charting the Headlines

                                                                                                                                                                                                                                                                                           

6/27

7/8

10/14

11/18

What Bears Might Say…

• Accounting is not always conservative

• GE’s large size makes it difficult to increase revenue– Exposed to risk across many industries

• Goodwill too large of a percentage of assets due to many acquisitions

Bull’s Point of View• Best growth numbers in years this 1st Quarter

– Revenue 19% and Earnings 25%

• GE invest heavily in R&D = Comp. Adv– $12.5 Billion over last 5 years– Uses technologies across different units

• Selling off insurance business– Lost $700 Million over last 5 years

• GE does not over-invest– Dividend payout ratio ~50% over past 4 years

• Strong Management– Jeff Immelt’s Pay

Recommendation

• BUY– Currently $36.20– AAA Credit Rating

• Making a run– S&P 500 Up

• Morningstar– $38.00 Fair Value

DCF = $37.68

Questions????