GE

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General Electric Company GE

Last Price 16.85 USD Fair Value 25.00 USD Consider Buy 12.50 USD Consider Sell 50.00 USD Uncertainty High
[NYSE]
QQQQ
TM
Economic Moat Wide
Stewardship B
Morningstar Credit Rating Industry Diversified .
United Technologies Reports 4Q
by Daniel Holland Stock Analyst Analysts covering this company do not own its stock. Pricing data through February 02, 2010. Rating updated as of February 02, 2010. Currency amounts expressed with "$" are in U.S. dollars (USD) unless otherwise denoted.
Analyst Note Jan. 27, 2010 | Anil Daka
segment will demonstrate improved revenues as the division benefits from the GE Security acquisition. While our overall view on the wide-moat firm is unaltered, we will review our fair value estimate after incorporating full-year financials.
Stock Price
39.0 29.0
19.0
8.0 06 07 08 09 10
Diversified conglomerate United Technologies reported decent fourth-quarter results today and maintained its outlook for 2010. Net revenues for fiscal 2009 fell 11% from the previous year as growth in the defense sector failed to overcome the steep decline in construction and commercial aviation end markets. Thus, with the exception of Sikorsky, sales in every division contracted during fiscal 2009. The firm also reported reduced operating margins due to lower absorption of fixed costs and higher restructuring and pension expenses. Overall, operating margin for the full year withered 54 basis points to 12.2%. A lower share count could not offset weak operational earnings, and United reported $4.12 in diluted earnings per share for the year. The firm generated $4.5 billion in free cash flow, paid $1.4 billion in dividends, and used $1.1 billion in share repurchases. Still, United ended the year with over $4.4 billion in cash. Management reiterated its 2010 guidance during todays conference call. The firm expects revenues to improve 2%-4% to around $55 billion and forecasts diluted earnings per share to grow 7%-13%. United will also incur $350 million in restructuring expenses and contribute $600 million to its underfunded pension plan. We think United Technologies is well-poised for continued value creation in 2010. An improving macroeconomic environment and the ongoing wars in Iraq and Afghanistan bode well for Uniteds business. On the commercial side, continued growth in international markets and sustained service revenue will buoy Uniteds revenues. Pratt and Whitney continues to develop the geared turbo fan engine and is well-poised to compete for platform wins in the next generation aircraft. Further, as the Department of Defense ramps up F-35 production, United will benefit. Helicopters continue to be in demand in the war theatre, and as the largest producer of military helicopters, United will enjoy sustained revenues. UTCs Fire and Security
Thesis Nov. 09, 2009 | Daniel Holland
General Electric positions itself to be a leader in whatever market it competes in. After shedding underperforming businesses during the past few years, the firm has energy infrastructure square in its sights. We believe that GE will emerge as a leader in the power infrastructure market, which will be the backbone for the firms growth. GE avoids the typical characterization of a conglomerate by combining businesses with strong synergies and opportunities for information-sharing across business lines. Add to this GEs ability to invest large amounts of money in expanding businesses, and virtually any barrier to enter a new market is significantly lower. With its legendary knack for squeaking out operating efficiencies, the firm is able to generate healthy returns on invested capital in many of its markets. By focusing its efforts on the most value-added components for customers, GE is able to remain relevant with customers and focus its research and development efforts on projects that customers will be willing to pay the most for. The portfolio of businesses continues to be correlated with industrialization and the needs of growing economies. GE has changed its focus as the world has shifted; it now has a heavy focus on clean-energy products, such as wind and gas turbines. The strength of GEs competitive advantage is most notable in wind turbines, where the company was able to unseat longtime incumbent Vestas with its superior manufacturing execution and better customer satisfaction. With the economic stimulus bill signed in February, demand for renewable-energy products should increase and have a noticeable impact on GE by 2010. Because the renewable-energy industry is still fairly new, many opportunities will exist where a proven manufacturer like

[NYSE]
QQQQ
TM
Economic Moat Wide
Stewardship B
Close Competitors General Electric Company Siemens AG United Technologies
Currency(Mil) USD USD USD USD
Market Cap 179,410 80,255 63,781 28,885
TTM Sales 161,558 108,669 53,319 32,256
Oper Income 36,556 9,378 6,461 26
Net Income 11,434 3,749 3,901 -1,520
Koninklijke Philips Electronics, N.V.

Morningstar data as of February 02, 2010.
mix of service-based revenue. We model a 90-basis-point drop from 2008 levels, to 13%, with a long-term forecast of 13.5%. The declines in the stock market have weighed down GEs pension plan, taking it from being overfunded by $14 billion to underfunded by $7 billion, which we account for as a hidden liability. Although the bank will emerge as a stronger and more stable company, we are concerned about the intensity of the credit cycle and its ramifications for GE Capitals receivables portfolio. In particular, GEs heavy exposure (roughly 20% of invested assets) to commercial real estate gives us pause as property rent rates continue to fall. Improvements in the credit card markets and U.K. residential markets help to release some of the pressure on the portfolio. While GE Capital is not out of the woods, we think it is unlikely for the bank to require more capital from the parent company in the near future.
GE will be able to make solid gains and outperform startups and other new entrants. GEs financial unit, GE Capital Services, saw profits fall in 2008 as rapidly deteriorating capital markets and weaker consumers put significant pressure on the units ability to maintain 2007s successes. The same factors that confronted GE during the back end of 2008 should persist through 2009 and into 2010 as the firm shrinks its asset portfolio and opts for longer-term funding in lieu of commercial paper. GEs assets are largely held to maturity, meaning that the firm loans money and collects the principal and interest checks from the borrower as opposed to depending on the capital markets to securitize the portfolio. As a result, GE will bear the financial burden of any underwriting problems. These assets include equipment leases, middle-market commercial loans, private-placement credit cards, and real estate. GEs decisions to wind down its non-U.S. mortgage portfolio and shift to higher-quality asset classes is welcome even though these decisions will probably pressure earnings. Although the near-term head winds are material, investors should benefit from a better-capitalized bank with higher asset quality over the long run.
Risk
Valuation
GEs industrial businesses are susceptible to economic downturns and are particularly sensitive to changes in infrastructure spending. The health-care business is sensitive to changes in government health-care reimbursement rates. GE Capital Services originates and underwrites loans for its own portfolio as opposed to securitizing these loans in the open market, reducing potential exposure to liquidity risk; it is, however, exposed to the creditworthiness of its counterparties and may experience steeper write-downs as delinquencies rise. The firms credit rating gives it access to lower-cost financing, and losing it could hurt profitability and make growth more difficult to achieve.
Our fair value estimate for GE shares is $25 per share. Over our forecast horizon we expect organic revenue growth to average 5%, with organic sales falling 1% in 2009. Operating margins should be a bit more resilient to the slowdown than industry peers because of the higher
Bulls Say
The economic stimulus package heavily provides incentive for activity in markets that GE supports.
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[NYSE]
QQQQ
TM
Economic Moat Wide
Stewardship B
NBC Universals joint venture Hulu.com recently picked up Disney as a partner and is quickly becoming a formidable response to the threat of Internet-based media content. GEs global presence gives it access to more information about the direction of economic activity than other firms, giving the company an advantage in getting its feet on the ground in emerging economies. A number of GE Capitals competitors are struggling due to the rise in delinquencies in residential and commercial real estate, leaving a less crowded competitive landscape for GE.
13.1% in 2008. We anticipate further erosion in 2009 as lower volume is spread across the existing fixed asset base. Financial Health: GEs industrial unit generated healthy free cash flows of $11.9 billion, or 10.4% of revenue, in 2008 and held $12 billion in cash at the end of the year. Even though industrial cash flows are likely to be lower in 2009 and the bank will consume capital, we think GE will be able to weather this cycle.
Company Overview Bears Say
Efficient manufacturing programs like Six Sigma and lean manufacturing have been around long enough for other firms to successfully implement and catch up to GE, reducing the strength of GEs cost advantage. GEs bank portfolio still has more than $100 billion on non-U.S. consumer loans outstanding which will keep charge-off rates high for the foreseeable future. By shifting to long-term financing, GE is opting for more expensive financing, which will pressure GE Capitals profitability. Oversight by financial regulators is imminent and GE Capital will more than likely have to retain more of its capital going forward as opposed to giving it back to the parent company.
Profile: General Electric is organized into five segments: technology infrastructure, energy infrastructure, NBC Universal, consumer and industrial, and capital services. Financial services accounted for 43% of the firms profit in 2008. The infrastructure segment is the main growth driver, thanks to its size relative to the overall portfolio (contributing 50% of industrial revenue and 53% of total segment profit), strong growth prospects, and favorable operating leverage. Strategy: GE focuses on producing complex, highly engineered, big-ticket items such as jet aircraft engines and electric power plant turbines. The company aims to serve extremely large markets with ample opportunity for market share expansion. Further, GE strives to be the number-one or -two supplier in each major served market. GE emphasizes businesses that offer a substantial service component with high-margin aftermarket service opportunities. In its financial arm, the firm aims to exploit the funding advantage afforded by its AAA credit rating and its expertise in collateral management. Management: GE is known for the strength and depth of its management team, which has a long history of creating value for shareholders. As testament to its depth, several former executives have gone on to lead other large
Financial Overview
Growth: GEs global focus gives the firm a number of different ways to increase revenue, particularly within its infrastructure segment. Despite its enormous size, we believe GEs top line can increase by 4.5% on average for the next five years. Profitability: Industrial margins deteriorated from 14.8% to

[NYSE]
QQQQ
TM
Economic Moat Wide
Stewardship B
companies. CEO Jeff Immelt took the reins from the legendary Jack Welch just days before 9/11, and his tenure to date has been characterized by a stronger balance sheet, significant acquisition spending, and the divestiture of most of the firms insurance and plastics businesses. Immelts management style is more collaborative and less transient than his predecessors. It also keeps managers in jobs longer to take advantage of their expertise. Overall, were satisfied with GEs corporate-governance practices but would prefer to see Immelts variable compensation more closely linked to return on invested capital, as that metric provides a better proxy for corporate stewardship than operating cash flow. GEs shareholders face a 3% dilution on average from equity-based compensation, but this does not alarm us.

[NYSE]
QQQQ
TM
Economic Moat Wide
Stewardship B
Analyst Notes
Jan. 27, 2010 United Technologies Reports 4Q
Diversified conglomerate United Technologies reported decent fourth-quarter results today and maintained its outlook for 2010. Net revenues for fiscal 2009 fell 11% from the previous year as growth in the defense sector failed to overcome the steep decline in construction and commercial aviation end markets. Thus, with the exception of Sikorsky, sales in every division contracted during fiscal 2009. The firm also reported reduced operating margins due to lower absorption of fixed costs and higher restructuring and pension expenses. Overall, operating margin for the full year withered 54 basis points to 12.2%. A lower share count could not offset weak operational earnings, and United reported $4.12 in diluted earnings per share for the year. The firm generated $4.5 billion in free cash flow, paid $1.4 billion in dividends, and used $1.1 billion in share repurchases. Still, United ended the year with over $4.4 billion in cash. Management reiterated its 2010 guidance during todays conference call. The firm expects revenues to improve 2%-4% to around $55 billion and forecasts diluted earnings per share to grow 7%-13%. United will also incur $350 million in restructuring expenses and contribute $600 million to its underfunded pension plan.
Jan. 22, 2010 GE Wraps up 2009 With Solid 4Q
We think United Technologies is well-poised for continued value creation in 2010. An improving macroeconomic environment and the ongoing wars in Iraq and Afghanistan bode well for Uniteds business. On the commercial side, continued growth in international markets and sustained service revenue will buoy Uniteds revenues. Pratt and Whitney continues to develop the geared turbo fan engine and is well-poised to compete for platform wins in the next generation aircraft. Further, as the Department of Defense ramps up F-35 production, United will benefit. Helicopters continue to be in demand in the war theatre, and as the largest producer of military helicopters, United will enjoy sustained revenues. UTCs Fire and Security segment will demonstrate improved revenues as the division benefits from the GE Security acquisition. While our overall view on the wide-moat firm is unaltered, we will review our fair value estimate after incorporating full-year financials.
General Electric produced fourth quarter results that exceeded our expectations for the firm, but we are unlikely to make any material changes to our fair value estimate at this time. Despite industrial revenues 8.5% decline, GE held operating margins flat at 17.4%. Showing the portfolios resilience, the high proportion of service revenues helped to offset volume losses, stabilizing overall profitability. While growth in the energy segment has cooled off from the same period a year ago, the oil and gas
business expanded 10% in the quarter. Healthcare produced a notable change from its recent trend with increases in orders across its various product lines and geographies--U.S. orders were up 9%, China orders were up 34%, and India orders increased 53%. Given the breadth of the improvements in healthcare, we think the segment is on a solid path for growth going forward. The company

[NYSE]
QQQQ
TM
Economic Moat Wide
Stewardship B
Analyst Notes (continued)

Dec. 03, 2009 GE Forms Joint Venture with Comcast
General Electric announced that it is forming a joint venture with Comcast, which should ultimately allow GE to exit the media business. GE will own a 49% interest in the new entity, which will consist of all of NBC Universals assets and Comcasts cable networks. Comcast will own the other 51% and manage the joint venture, though NBCs head, Jeff Zucker, will be the CEO of the new company and GE will maintain a significant presence on the board of directors. At the deals closing, we expect GE to receive $8
Dec. 03, 2009 Vivendi Sells Stake in NBC Universal
billion in cash, with the buyout provisions allowing GE to completely exit the venture after seven years. Strategically, moving NBC Universal out of the portfolio makes sense, in our opinion. GE has strong growth opportunities in its infrastructure business, and selling NBC Universal should help GE accelerate growth in targeted areas. Our current fair value estimate is unlikely to change as a result of this deal because the transaction value is in line with our projections for this deal.
General Electrics decision to sell its majority stake in NBC Universal to Comcast is a positive turn of events for French media conglomerate Vivendi, in our view. As part of the larger and highly complex deal between General Electric and Comcast, Vivendi will jettison its 20% stake in NBC Universal. That Vivendi would do so hardly surprises us. It has been well-established that Vivendi considered its interest in the troubled peacock network as not strategic, a notion underscored by the fact that Vivendi held little sway when it came to managing NBCs operations. We think dumping the NBC albatross will free up significant capital and resources for Vivendi, which will then be better positioned to turn its gaze toward faster-growing niches of the media world, in our view. The $5.8 billion that General Electric will pay Vivendi for its NBC stake is below Vivendis carrying cost, including the effect of an earlier write-down. While Vivendi will receive no cash up front for its NBC stake, it will continue to receive quarterly dividends until the deal between GE and Comcast closes. If the GE - Comcast deal hasnt closed by
Dec. 01, 2009 GE, Vivendi Agree on NBC Universal Price
September 2010, GE will pay Vivendi $2 billion for 7.66% of NBC Universal. Vivendis other 12.34% stake in NBC Universal will be sold for $3.8 billion when the transaction closes. If the GE - Comcast deal falls through, the 12.34% stake will be sold in an IPO. Still, we think the $5.8 billion Vivendi will get for NBC is a good price, especially given the prevailing headwinds in the broadcast media world. Valuations for media properties have been in a tailspin since Vivendi sold its original stake in Universal to GE in 2004, the deal which created NBC Universal as we have known it. Since that time, the media world has undergone a profound structural shift, resulting in a substantial decline in the major networks share of television viewers. NBC has borne the brunt of that decline, as it has stumbled in its struggle to repeat its glory days of primetime ratings hits. As its TV audience continues to fragment, advertiser dollars have followed. The effect of these declines has been exacerbated by the broader economic recession, as advertisers have followed consumers in pulling back on their spending.
The Wall Street Journal reports that General Electric and

[NYSE]
QQQQ
TM
Economic Moat Wide
Stewardship B
Analyst Notes (continued) Vivendi have agreed on a price for Vivendis 20% stake in NBC Universal. The reported $5.8 billion price for Vivendis portion is slightly below our estimate of the assets value. We presume that GEs purchase of the residual NBC Universal stake is only one step in a multipart process that will allow GE to sell NBC Universal to Comcast in a deal valued at $30 billion. We expect an official announcement in the coming days. These moves are consistent with our thesis for GE, and we think it makes sense over the long run for the company to focus on its core strengths: energy, aviation, and health care.
Nov. 12, 2009 United Technologies Acquires GE Security
Additionally, it appears that GE lost its bid to purchase Arevas transmission and distribution assets, with Areva instead choosing the Schneider-Alstom suitors. While adding the transmission and distribution segment to GEs energy portfolio would have strengthened its offering, the lack of that business does not impair the companys ability to grow over the long run. We are not changing our fair value estimate for GE as a result of todays events.
Today United Technologiesannounced the acquisition of General Electrics security business for $1.8 billion. GE Security provides fire-detection systems, intrusion alarms, and video surveillance products in 26 countries. GE Security will become a part of Uniteds $6 billion fire and security business after this acquisition. The global fire safety and electronic security business is a large (about $100 billion) but extremely fragmented market. United Technologies and other important players, such as Tyco and Siemens, together own around 30% of the total market and enjoy significant growth opportunities. Firms competing in this industry encounter large fixed costs, so a companys ability to spread fixed costs over a large customer base often determines profitability. Thus, firms that scale up operations can potentially extract higher
Oct. 16, 2009 First Impression of GEs 3Q
margins because of operating leverage. Because Uniteds acquisition increases its fire and security business by nearly 20%, we think the firm can benefit from this acquisition. United said that GE security expects 2009 sales of $1.2 billion. At around 1.3 times sales and 9 times forward earnings before interest, taxes, depreciation, and amortization, this deal does not look horribly expensive, considering the potential for margin improvement at Uniteds fire and security business. United expects this acquisition to be neutral to earnings in 2010 because of restructuring actions, but the firm forecasts earnings accretion in 2011. Although this deal is important for the fire and security business, it does not move the needle for Uniteds $50 billion-plus revenue. Our overall opinion on United Technologies is unchanged after the acquisition, and we are maintaining our fair value estimate.
General Electric reported third-quarter results Friday that were in line with our expectations, and our overall thesis is intact. GE earned $2.4 billion, or $0.22 per share, with industrial revenue falling to $25.6 billion from $29.6 billion
in the year-ago quarter. The energy segment, which seemed immune to the recession, saw its first drop in revenue during this quarter, but profits actually increased. We think energys respite from growth will be short-lived, since natural gas prices remain low, which increases

[NYSE]
QQQQ
TM
Economic Moat Wide
Stewardship B
Analyst Notes (continued) demand for turbines. We also expect demand for wind products to pick up with stimulus incentives. One benefit of GEs strong service business is that during periods of low product demand, service revenue holds fairly steady. More important, margins on services are vastly higher than those on equipment, resulting in higher margins during downcycles. GEs service-heavy segments experienced year-over-year operating margin improvements even though revenue declined by double digits. This mix balance helps steady the firms bottom line through the cycle. GE Capital remained very weak, posting a profit only aftertax gains of more than $1.1 billion. Pretax preprovision income fell to $1.9 billion from $3.3 billion, with all major finance segments reporting declines. We expect profits to decline at GE Capital as the firm reduces the size of the bank, lends less money, and shifts its funding from cheaper commercial paper to longer-term debt. We also expect loss
Aug. 04, 2009 GE Settles SEC Accounting Dispute
provisions to remain material over the next few quarters; provisions increased $100 million from the second quarter to $2.9 billion. We presume much of this is related to the commercial real estate business, which reported a loss of $538 million, but we anticipate having a clearer picture after the company releases more information. While not glamorous, these third-quarter results reflect GEs ability to weather the cycle. Our key question about GE coming into the recession was whether the company could juggle all of the crises at one time, while still investing for growth. As we slowly exit the recession, GE emerges with a strong industrial portfolio in which it has continued to invest and a finance arm that we think will be more focused and closely aligned with the other businesses. Near-term hurdles remain, particularly in health care and commercial real estate, but as a whole, the firm is deliberately stepping out of the recession. We are maintaining our fair value estimate.
antifraud provisions of the securities laws. General Electric settled an accounting dispute with the SEC for $50 million on Tuesday. During 2002 and 2003 there were four different infractions disputed and the company subsequently restated its financial statements over the period from 2005 through the beginning of 2008 (as disclosed in September 2008). The most egregious offenses rest with the accounting for commercial paper hedges that the company subsequently ended and the revenue recognition for transactions in its rail business. Both of these instances were deemed intentional violations of the Although the company has already restated its financial statements to correct for the errors and the $50 million fine is small relative to the GEs normal profits, this settlement is a dent in the solid reputation the company has sought to build and leaves a bad aftertaste, as no investor likes to see a company restate financials and pay fines to the SEC. We have accounted for the settlement charge in our fair value and will not be making any changes as a result.
Disclaimers & Disclosures No Morningstar employees are officers or directors of this company. Morningstar Inc. does not own more than 1% of the shares of this company. Analysts covering this company do not own its stock. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security.
Morningstar Stock Data Sheet
Pricing data thru Feb. 02, 2010
Rating updated as of Feb. 02, 2010
Fiscal year-end: December

General Electric is organized into five segments: technology infrastructure, energy infrastructure, NBC Universal, consumer and industrial, and capital services. Financial services accounted for 43% of the firms profit in 2008. The infrastructure segment is the main growth driver, thanks to its size relative to the overall portfolio (contributing 50% of industrial revenue and 53% of total segment profit), strong growth prospects, and favorable operating leverage.
Morningstar Rating
Sales USD Mil Mkt Cap USD Mil Industry
Sector
161,558
Last Price Fair Value
179,410
Uncertainty
Diversified
Economic Moat
TM
Industrial Materials
Stewardship Grade
QQQQ
60.75 41.65
3:1
16.85
25.00 37.75 28.88
High 38.49 32.06
Wide 38.52 12.58
B per share prices in USD

Annual Price High Low Recent Splits
53.55 28.50
41.83 21.41
32.18 21.82
37.34 32.67
42.15 33.90
17.52 5.73
16.95 15.15
Price Volatility
39.0 19.0
Monthly High/Low Rel Strength to S&P 500 52 week High/Low 17.52 - 5.73 10 Year High/Low 60.75 - 5.73
5.0
3135 Easton Turnpike W3F Fairfield, CT 06828-0001 Phone: 1 203 373-2211Website: http://www.ge.com
2.0 79.0 29.0
Bear-Market Rank 1 (10=worst) Trading Volume Million
Growth Rates Compound Annual

Grade: C 1 Yr 3 Yr 5 Yr 10 Yr
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
YTD
Stock Performance Total Return % +/- Market +/- Industry Dividend Yield % Market Cap USD Mil
Financials
Revenue % Operating Income % Earnings/Share % Dividends % Book Value/Share % Stock Total Return % +/- Industry +/- Market Profitability Analysis
Grade: C
5.7 72.9 -19.1 7.8 -9.1 50.3 0.1 26.9

Current
6.8 27.6 5.0 10.9 0.5 -18.2 -6.1 -10.5

5 Yr Avg
6.3 18.2 2.8 10.0 5.9 -9.7 -3.6 -8.1

Ind
6.2 13.1 6.7 11.5 10.2 -5.8 -2.5 -3.1

Mkt
-6.0 -15.0 -37.4 30.4 20.5 -1.5 9.1 2.7 -53.0 -2.8 11.4 -25.5 -4.9 -24.4 53.8 -5.9 -10.5 6.1 -10.9 -56.5 35.7 -12.0 -4.9 -2.7 -3.4 -3.8 5.8 0.4 0.6 -4.8 -4.9 -18.8 6.5 1.2 1.6 3.0 2.5 2.3 2.6 2.8 3.1 7.7 4.0 3.6 475008 397889 242308 311066 385883 370344 383564 370240 161278 161097 179410
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 TTM
111630 58.8 15577 14.0 10717 . . . 5.10
69497 125913 131698 134187 152363 149702 163391 172738 182515 161558 37.3 61.0 59.9 61.8 59.5 55.4 54.6 57.7 54.1 51.5 16534 19701 18891 19904 20106 22129 24620 26598 45991 36556 23.8 15.6 14.3 14.8 13.2 14.8 15.1 15.4 25.2 22.6 12735 1.27 0.57 10057 5.52 13684 1.37 0.66 10052 6.40 14118 1.41 0.73 10028 7.89 15002 1.49 0.77 10075 10.43 16593 1.59 0.82 10445 10.35 16353 1.54 0.91 10611 10.90 20829 2.00 1.03 10394 11.57 22208 2.17 1.15 10218 . 17335 1.72 1.24 10098 11.02 11434 1.08 0.82 10557 11.02
Revenue USD Mil Gross Margin % Oper Income USD Mil Operating Margin % Net Income USD Mil Earnings Per Share USD Dividends USD Shares Mil Book Value Per Share USD Oper Cash Flow USD Mil Cap Spending USD Mil Free Cash Flow USD Mil
Profitability
Return on Equity % 9.9 Return on Assets % 1.4 Fixed Asset Turns 2.1 Inventory Turns 5.6 Revenue/Employee USD K 500.2 Gross Margin % Operating Margin % Net Margin % Free Cash Flow/Rev % R&D/Rev % Financial Position
Grade: C
17.3 2.6 2.4 6.5 535.2 * 56.3 16.7 11.4 14.7 .
15.1 2.9 3.1 5.0 . 39.7 15.3 9.1 11.8 .
14.9 5.8 6.8 11.3 863.4 41.5 14.3 6.8 0.0 11.2
51.5 22.6 7.1 14.8 .
24593 22690 32195 29488 -15502 -13967 -15520 -13351 9091 8723 16675 16137
1999 2000 2001 2002
30289 36484 37641 30646 45967 48601 34251 -9767 -13118 -14441 -16650 -17870 -16010 -10334 20522 23366 23200 13996 28097 32591 23917
2003 2004 2005 2006 2007 2008 TTM
12-08 USD Mil
09-09 USD Mil
Cash Inventories Receivables Current Assets Fixed Assets Intangibles Total Assets Payables Short-Term Debt Current Liabilities Long-Term Debt Total Liabilities Total Equity Valuation Analysis
Current
48187 13674 400018 503325 78530 96736 797769 24159 193695 248610 330067 693104 104665
5 Yr Avg Ind
61374 13092 374640 501867 72993 99890 787846 18931 160115 210786 358092 670317 117529
Mkt
. . 9.6 . .
1999
3.0 27.4 18.3 0.17 8.7

2000
2.9 26.0 10.9 0.27 9.0

2001
2.6 23.8 10.7 0.25 9.0

2002
2.5 21.0 11.2 0.22 8.2

2003
2.4 17.5 10.9 0.22 6.8

2004
2.3 14.9 10.9 0.21 6.2

2005
3.0 18.8 12.7 0.24 6.2

2006
3.0 19.5 12.9 0.23 6.9

2007
2.2 15.7 9.5 0.23 7.6

2008
1.4 9.9 7.1 0.20 6.7

09-09
Return on Assets % Return on Equity % Net Margin % Asset Turnover Financial Leverage
Financial Health
111971 139551 141804 206819 238969 287542 184959 218214 244405 254715 291081 71427 82132 79806 140632 170004 213161 212281 260804 319015 330067 358092 42557 50492 54824 63706 79180 110284 109354 112314 115559 104665 117529 1.63 1.46 2.21 2.15 1.93 1.94 2.32 2.76 3.15 3.05 .
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 TTM
Working Capital USD Mil Long-Term Debt USD Mil Total Equity USD Mil Debt/Equity
Valuation
37.7 . 6.9 9.4 21.2
28.4 . 3.2 7.3 12.5
16.1 0.7 1.9 3.8 8.3
20.0 1.0 2.3 3.9 10.3
22.9 1.1 2.5 3.5 10.4
22.8 1.2 2.5 3.4 9.9
18.7 1.1 2.4 3.4 12.7
16.9 1.0 2.2 3.2 8.2
11.1 0.7 . . .
13.7 1.3 1.0 1.4 4.7
15.3 . 1.1 1.5 5.2
Price/Earnings P/E vs. Market Price/Sales Price/Book Price/Cash Flow
Quarterly Results
Revenue USD Mil Dec 08 Mar 09 Jun 09 Sep 09
Industry Peers by Market Cap

Mkt Cap USD Mil Rev USD Mil P/E ROE%
Price/Earnings Forward P/E Price/Cash Flow Price/Free Cash Flow Dividend Yield % Price/Book Price/Sales PEG Ratio
15.3 14.2 5.2 7.4 3.6 1.5 1.1 1.8
16.6 . . . . . . .
20.0 . 6.6 9.7 1.8 1.9 1.1 .
. 16.0 . . 1.9 . . 1.4
Most Recent Period Prior Year Period

Rev Growth %
46213.0 37799.0 37799.0 37799.0 48576.0 46213.0 46213.0 46213.0

Dec 08 Mar 09 Jun 09 Sep 09
General Electric Com Siemens AG United Technologies Major Fund Holders
179410 80255 63781
161558 15.3 108669 21.3 53319 16.2
9.9 9.4 19.7

Earnings Per Share USD
-4.9 8.4
Dec 08
-18.2 -4.9
Mar 09
-18.2 -4.9
Jun 09
-18.2 -4.9
Sep 09
% of shares
0.35 0.66
0.26 0.43
0.24 0.51
0.23 0.43
Vanguard 500 Index Investor Vanguard Total Stock Mkt Idx Vanguard Institutional Index
0.95 0.92 0.68
*3Yr Avg data is displayed in place of 5Yr Avg
TTM data based on rolling quarterly data if available; otherwise most recent annual data shown.
Morningstars Approach to Rating Stocks
Our Key Investing Concepts Economic Moat Rating Discounted Cash Flow Discount Rate Fair Value Uncertainty Margin of Safety Consider Buying/Consider Selling Stewardship Grades
TM
At Morningstar, we evaluate stocks as pieces of a business, not as pieces of paper. We think that purchasing shares of superior businesses at discounts to their intrinsic value and allowing them to compound their value over long periods of time is the surest way to create wealth in the stock market. We rate stocks 1 through 5 stars, with 5 the best and 1 the worst. Our star rating is based on our analysts estimate of how much a companys business is worth per share. Our analysts arrive at this "fair value estimate" by forecasting how much excess cash--or "free cash flow"--the firm will generate in the future, and then adjusting the total for timing and risk. Cash generated next year is worth more than cash generated several years down the road, and cash from a stable and consistently profitable business is worth more than cash from a cyclical or unsteady business. Stocks trading at meaningful discounts to our fair value estimates will receive high star ratings. For high-quality businesses, we require a smaller discount than for mediocre ones, for a simple reason: We have more confidence in our cash-flow forecasts for strong companies, and thus in our value estimates. If a stocks market price is significantly above our fair value estimate, it will receive a low star rating, no matter how wonderful we think the business is. Even the best company is a bad deal if an investor overpays for its shares. Our fair value estimates dont change very often, but market prices do. So, a stock may gain or lose stars based
just on movement in the share price. If we think a stocks fair value is $50, and the shares decline to $40 without much change in the value of the business, the star rating will go up. Our estimate of what the business is worth hasnt changed, but the shares are more attractive as an investment at $40 than they were at $50. Because we focus on the long-term value of businesses, rather than short-term movements in stock prices, at times we may appear out of step with the overall stock market. When stocks are high, relatively few will receive our highest rating of 5 stars. But when the market tumbles, many more will likely garner 5 stars. Although you might expect to see more 5-star stocks as the market rises, we find assets more attractive when theyre cheap. We calculate our star ratings nightly after the markets close, and issue them the following business day, which is why the rating date on our reports will always be the previous business day. We update the text of our reports as new information becomes available, usually about once or twice per quarter. That is why youll see two dates on every Morningstar stock report. Of course, we monitor market events and all of our stocks every business day, so our ratings always reflect our analysts current opinion.
Economic Moat Rating
TM
The Economic Moat Rating is our assessment of a firms ability to earn returns consistently above its cost of capital in the future, usually by virtue of some competitive advantage. Competition tends to drive down such
TM
Morningstar Research Methodology for Valuing Companies
Competitive Analysis
Economic TM Moat Rating
Company Valuation
Fair Value Estimate
Uncertainty Assessment
QQQQQ
Q QQ QQQ QQQQ QQQQQ
The current stock price relative to fair value, adjusted for uncertainty, determines the rating.
Analyst conducts company and industry research: Management interviews Conference calls Trade-show visits Competitor, supplier, distributor, and customer interviews
The depth of the firms competitive advantage is rated: None Narrow Wide
Analyst considers company financial statements and competitive position to forecast future cash flows. Assumptions are input into a discounted cash-flow model.
DCF model leads to the firms Fair Value Estimate, which anchors the rating framework.
An uncertainty assessment establishes the margin of safety required for the stock rating.
Morningstars Approach to Rating Stocks (continued)
economic profits, but companies that can earn them for an extended time by creating a competitive advantage possess an Economic Moat. We see these companies as superior investments.
Very High, or Extreme. The greater the level of uncertainty, the greater the discount to fair value required before a stock can earn 5 stars, and the greater the premium to fair value before a stock earns a 1-star rating.
Discounted Cash Flow
Margin of Safety
This is a method for valuing companies that involves projecting the amount of cash a business will generate in the future, subtracting the amount of cash that the company will need to reinvest in its business, and using the result to calculate the worth of the firm. We use this technique to value nearly all of the companies we cover.
This is the discount to fair value we would require before recommending a stock. We think its always prudent to buy stocks for less than theyre worth.The margin of safety is like an insurance policy that protects investors from bad news or overly optimistic fair value estimates. We require larger margins of safety for less predictable stocks, and smaller margins of safety for more predictable stocks.
Discount Rate
We use this number to adjust the value of our forecasted cash flows for the risk that they may not materialize. For a profitable company in a steady line of business, well use a lower discount rate, also known as "cost of capital," than for a firm in a cyclical business with fierce competition, since theres less risk clouding the firms future.
Consider Buying/Consider Selling
The consider buying price is the price at which a stock would be rated 5 stars, and thus the point at which we would consider the stock an extremely attractive purchase. Conversely, consider selling is the price at which a stock would have a 1 star rating, at which point wed consider the stock overvalued, with low expected returns relative to its risk.
Fair Value
This is the output of our discounted cash-flow valuation models, and is our per-share estimate of a companys intrinsic worth. We adjust our fair values for off-balance sheet liabilities or assets that a firm might have--for example, we deduct from a companys fair value if it has issued a lot of stock options or has an under-funded pension plan. Our fair value estimate differs from a "target price" in two ways. First, its an estimate of what the business is worth, whereas a price target typically reflects what other investors may pay for the stock. Second, its a long-term estimate, whereas price targets generally focus on the next two to 12 months.
Stewardship Grades
We evaluate the commitment to shareholders demonstrated by each firms board and management team by assessing transparency, shareholder friendliness, incentives, and ownership. We aim to identify firms that provide investors with insufficient or potentially misleading financial information, seek to limit the power of minority shareholders, allow management to abuse its position, or which have management incentives that are not aligned with the interests of long-term shareholders. The grades are assigned on an absolute scale--not relative to peers--and can be interpreted as follows: A means "Excellent," B means "Good," C means "Fair," D means "Poor," and F means "Very Poor."
Uncertainty
To generate the Morningstar Uncertainty Rating, analysts consider factors such as sales predictability, operating leverage, and financial leverage. Analysts then classify their ability to bound the fair value estimate for the stock into one of several uncertainty levels: Low, Medium, High,

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General Electric Company GE

Economic Moat Wide

Morningstar Credit Rating Industry Diversified .

United Technologies Reports 4Q

Analyst Note Jan. 27, 2010 | Anil Daka

Thesis Nov. 09, 2009 | Daniel Holland

General Electric Company GE

Economic Moat Wide

Morningstar Credit Rating Industry Diversified .

Close Competitors General Electric Company Siemens AG United Technologies

Currency(Mil) USD USD USD USD

Market Cap 179,410 80,255 63,781 28,885

TTM Sales 161,558 108,669 53,319 32,256

Oper Income 36,556 9,378 6,461 26

Net Income 11,434 3,749 3,901 -1,520

Koninklijke Philips Electronics, N.V.

General Electric Company GE

Economic Moat Wide

Morningstar Credit Rating Industry Diversified .

Company Overview Bears Say

General Electric Company GE

Economic Moat Wide

Morningstar Credit Rating Industry Diversified .

General Electric Company GE

Economic Moat Wide

Morningstar Credit Rating Industry Diversified .

General Electric Company GE

Economic Moat Wide

Morningstar Credit Rating Industry Diversified .

Analyst Notes (continued)

The Wall Street Journal reports that General Electric and

General Electric Company GE

Economic Moat Wide

Morningstar Credit Rating Industry Diversified .

General Electric Company GE

Economic Moat Wide

Morningstar Credit Rating Industry Diversified .

Morningstar Stock Data Sheet

Pricing data thru Feb. 02, 2010

Rating updated as of Feb. 02, 2010

Fiscal year-end: December

General Electric Company GE

Sales USD Mil Mkt Cap USD Mil Industry

25.00 37.75 28.88

High 38.49 32.06

Wide 38.52 12.58

B per share prices in USD

2.0 79.0 29.0

Bear-Market Rank 1 (10=worst) Trading Volume Million

Growth Rates Compound Annual

5.7 72.9 -19.1 7.8 -9.1 50.3 0.1 26.9

6.8 27.6 5.0 10.9 0.5 -18.2 -6.1 -10.5

6.3 18.2 2.8 10.0 5.9 -9.7 -3.6 -8.1

6.2 13.1 6.7 11.5 10.2 -5.8 -2.5 -3.1

111630 58.8 15577 14.0 10717 . . . 5.10

17.3 2.6 2.4 6.5 535.2 * 56.3 16.7 11.4 14.7 .

15.1 2.9 3.1 5.0 . 39.7 15.3 9.1 11.8 .

51.5 22.6 7.1 14.8 .

12-08 USD Mil

09-09 USD Mil

3.0 27.4 18.3 0.17 8.7

2.9 26.0 10.9 0.27 9.0