Stock Analysis on Net
Stock Analysis on Net

General Electric Co. (NYSE:GE)

Dividend Discount Model (DDM)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

Intrinsic Stock Value (Valuation Summary)

General Electric Co., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 15.07%
0 DPS01 0.32
1 DPS1 0.33 = 0.32 × (1 + 1.64%) 0.28
2 DPS2 0.34 = 0.33 × (1 + 4.94%) 0.26
3 DPS3 0.37 = 0.34 × (1 + 8.24%) 0.24
4 DPS4 0.41 = 0.37 × (1 + 11.53%) 0.24
5 DPS5 0.47 = 0.41 × (1 + 14.83%) 0.23
5 Terminal value (TV5) 226.13 = 0.47 × (1 + 14.83%) ÷ (15.07% – 14.83%) 112.10
Intrinsic value of General Electric Co. common stock (per share) $113.35
Current share price $152.94

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of General Electric Co. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.83%
Expected rate of return on market portfolio2 E(RM) 13.48%
Systematic risk of General Electric Co. common stock βGE 1.18
 
Required rate of return on General Electric Co. common stock3 rGE 15.07%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rGE = RF + βGE [E(RM) – RF]
= 4.83% + 1.18 [13.48% – 4.83%]
= 15.07%

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

General Electric Co., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends and other transactions with shareholders, excluded preferred stock dividends 5,642 353 380 540 306
Preferred stock dividends 295 289 237 474 460
Net earnings (loss) attributable to the Company 9,481 225 (6,520) 5,704 (4,979)
Sales of equipment and services 64,565 73,602 71,090 73,022 87,487
Total assets 163,045 187,788 198,874 253,452 266,048
Total GE shareholders’ equity 27,378 36,366 40,310 35,552 28,316
Financial Ratios
Retention rate1 0.39 — — 0.90 —
Profit margin2 14.23% -0.09% -9.50% 7.16% -6.22%
Asset turnover3 0.40 0.39 0.36 0.29 0.33
Financial leverage4 5.96 5.16 4.93 7.13 9.40
Averages
Retention rate 0.64
Profit margin 1.12%
Asset turnover 0.35
Financial leverage 6.52
 
Dividend growth rate (g)5 1.64%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net earnings (loss) attributable to the Company – Dividends and other transactions with shareholders, excluded preferred stock dividends – Preferred stock dividends) ÷ (Net earnings (loss) attributable to the Company – Preferred stock dividends)
= (9,481 – 5,642 – 295) ÷ (9,481 – 295)
= 0.39

2 Profit margin = 100 × (Net earnings (loss) attributable to the Company – Preferred stock dividends) ÷ Sales of equipment and services
= 100 × (9,481 – 295) ÷ 64,565
= 14.23%

3 Asset turnover = Sales of equipment and services ÷ Total assets
= 64,565 ÷ 163,045
= 0.40

4 Financial leverage = Total assets ÷ Total GE shareholders’ equity
= 163,045 ÷ 27,378
= 5.96

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.64 × 1.12% × 0.35 × 6.52
= 1.64%

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × r – D0) ÷ (P0 + D0)
= 100 × ($152.94 × 15.07% – $0.32) ÷ ($152.94 + $0.32)
= 14.83%

where:
P0 = current price of share of General Electric Co. common stock
D0 = the last year dividends per share of General Electric Co. common stock
r = required rate of return on General Electric Co. common stock

Dividend growth rate (g) forecast

General Electric Co., H-model

Microsoft Excel
Year Value gt
1 g1 1.64%
2 g2 4.94%
3 g3 8.24%
4 g4 11.53%
5 and thereafter g5 14.83%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 1.64% + (14.83% – 1.64%) × (2 – 1) ÷ (5 – 1)
= 4.94%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 1.64% + (14.83% – 1.64%) × (3 – 1) ÷ (5 – 1)
= 8.24%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 1.64% + (14.83% – 1.64%) × (4 – 1) ÷ (5 – 1)
= 11.53%