General Electric Stock Could Rise More Than 30%

General Electric Co

GE

28.05

-0.27%

Shares of General Electric Co.(GE)   have underwhelmed investors for nearly a decade, with the stock price languishing behind the performance not only of its peers, but the S&P 500.

When activist investor Nelson Peltz of Trian Fund Management LP acquired GE shares in October 2015, the stock was trading at around $25. The stock has certainly not delivered since Peltz's entrance. But that could all be in the past now, and GE could have an upside that may be significant if we take a cue from its peers.

Since October 2015, the industrial conglomerate's shares have only climbed by about 13 percent, while the S&P 500 has gained nearly 27 percent. That's certainly not a performance Peltz or any investor would want from any stock they invest in. Meanwhile, Honeywell International Inc. (HON)

Honeywell International Inc

HON

134.79

-0.09%

 and United Technologies Corporation (UTX)

United Technologies Corp

UTX

121.74

+0.19%

 have also substantially outperformed GE.

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GE

28.05

 

-0.27%

HON

134.79

 

-0.09%

UTX

121.74

 

+0.19%

On a P/E basis, GE shares trade at nearly 15 times 2018 EPS estimates, while United Technologies and Honeywell trade at around 17.50.

GE PE Ratio (Forward 1y) data by YCharts

When adjusted for growth, we see that on a one-year forward PEG ratio, GE is substantially cheaper than its peers Honeywell and United Technologies.

GE PEG Ratio (Forward 1y) data by YCharts

GE also possesses the highest long-term earnings growth estimates of the three stocks, at 11 percent.

GE EPS LT Growth Estimates data by YCharts

For GE, it doesn't take much from the stock's current level to see the price rise significantly in the not-too-distant future. With a new CEO coming in, GE has an opportunity to reset its relationship with investors and possibly boost its valuation multiple. (See also: The Top 4 General Electric Shareholders.)

If GE just traded in line with Honeywell and United Technologies at around 17.50, with 2019 EPS estimates of $2.09, one can make a powerful argument that GE shares are worth at least $36 per share – an increase of nearly 30 percent from its current level. However, that is only if the stock trades in line with its peers.

If GE delivers on the growth estimates analysts are projecting – which come at a premium to its peers at 18.50 times 2019 estimates – we get a stock price of nearly $38.50, almost 36 percent higher.

GE would need to hit analyst expectations and modest multiple expansion equal to that of its peers for its stock price to achieve higher levels.

By Michael Kramer

Source: https://goo.gl/AoidNr