General Electric (GE) was the most battered industrial stock last year, losing ~57% of its value in the period. GE was also the third-worst performer among NYSE-listed stocks after Coty (COTY) and Mohawk Industries (MHK).
However, the drastic fall in GE’s share price has made its valuation attractive. At its current market price, GE is trading at a PE multiple of 12.05x, a significant discount to the industrial sector’s (XLI) PE multiple of 24.90x.
The industrial conglomerate is also trading at a lower PE than its top peers. Its main competitors Honeywell International (HON), 3M Company (MMM), and United Technologies (UTX) are trading at PE multiples of 17.98x, 20.05x, and 15.20x, respectively.
Furthermore, based on analysts’ next-12-month earnings projections, GE is also trading at a discount to its competitors. The forward PE multiples of GE, HON, MMM, and UTX are 10.68x, 17.85x, 18.11x, and 14.57x, respectively.
The PE multiple is the most commonly used valuation multiple because of its simplicity. However, the measurement has some flaws, such as the fact that the earnings of a company can be easily manipulated, making the multiple meaningless. It’s therefore wise to compare these companies based on a more meaningful valuation multiple, such as the EV-to-EBITDA (enterprise value-to-EBITDA) multiple.
Currently, GE has an EV-to-EBITDA multiple of 34.09x, higher than HON’s, MMM’s, and UTX’s EV-to-EBITDA multiples of 11.60x, 15.49x, and 12.77x, respectively. However, based on analysts’ next-12-month EBITDA estimates, GE is trading at a discounted EV-to-EBITDA multiple to its peers. The forward EV-to-EBITDA multiples of GE, HON, MMM, and UTX are 9.53x, 12.70x, 12.71x, and 10.28x, respectively.
Analysts’ ratings and target price
GE stock has received a consensus “hold” recommendation from analysts polled by Reuters. Four out of 20 analysts have “strong buy” recommendations on the stock, five have “buy” recommendations, nine have “hold” recommendations, and the remaining two have “strong sell” recommendations.
The stock’s one-year target price of $11.73 depicts a potential return of ~33%.