Valuation Whiz Calls GE ‘Significantly Undervalued’ After Sell-Off

(Bloomberg) -- General Electric Co., on track for its biggest annual share decline in a decade, has at least one prospective investor: one of the world’s foremost experts on stock valuations.

“I believe that the market has over-corrected for GE’s many faults, and at the current stock price, that it is significantly undervalued,’’ Aswath Damodaran, a finance professor at New York University, said Wednesday in an analysis on his website.

Sure, GE is an unwieldy conglomerate with a big pile of debt and a collection of slow-growth businesses such as power equipment, jet engines and medical scanners. But retrenching as a “stable, high-margin company in businesses where it has a competitive advantage’’ should make GE worth almost $11 a share, he said.

GE climbed less than 1.8 percent to $8.47 at 9:57 a.m. in New York, for a market capitalization of almost $74 billion. The shares tumbled 52 percent this year through Wednesday. It hasn’t dropped that much in a year since plunging 56 percent in 2008.

The company has shed $200 billion in value since the end of 2016 -- and more than half a trillion dollars since its heyday in 2000 under former Chief Executive Officer Jack Welch.

Breakup Value

A breakup would theoretically unlock additional value of almost another dollar a share, according to Damodaran’s estimates. Trouble is, he said, “fire sales of entire companies almost never deliver the expected proceeds, as buyers, recognizing desperation, hold back.’’ And GE would struggle to attract multiple bidders for each business.

Risks abound. Starting an acquisition spree or reinvesting large amounts in an effort to regain GE’s lost glory would be a recipe for disaster, the professor said. GE CEO Larry Culp, who made his name fashioning Danaher Corp. into a dynamo, shouldn’t be an empire-building visionary, Damodaran said. Instead his role model should be “Larry the Liquidator.”

Then there’s GE’s deteriorating credit rating and its debt of more than $100 billion. Liabilities at the finance unit, GE Capital, so outweigh the value of the business that exiting it will probably cost GE $24 billion over time, Damodaran said.

“If GE can navigate its way through its debt payments to becoming a more focused company, with constrained ambitions, it could survive and reclaim its place as a holding for a conservative value investor,” he said. “I will buy GE, but I will do so with open eyes, not expecting (or wanting) dividends to be paid until the debt gets paid down and the company exits the capital business with as much grace (and as few costs) as it can muster.’’

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