GE Maintains 10% to 15% Infrastructure Growth Target (GE)

Reuters has run a piece this morning commenting from an email interview from the Reuters Singapore desk with questions to John Rice, chief executive and vice chairman.  The conglomerate is maintaining a 10% to 15% growth target for its GE Infrastructure operations.  While inflation and commodity price hikes are a problem, the company notes that demand is strong and as this was in Asia the company noted that Asia infrastructure was a $20 Billion market that is growing approximately 20% per year and Southeast Asia was singled out as having 25% growth in the first quarter alone.

We have followed the developments and the key metrics inside GE rather closely ourselves.  While the company has been growing and making its strategic changes along the way, the stock has so far refused to be attractive to Wall Street and to Main Street.  The disappointment last quarter may have sealed its fate to one with a more questionable bias rather than that of a promising bias.  We feel shares have been sold off excessively in this last downdraft, but the market tries and tries to find equilibrium.  Its last guidance depended on things not getting worse, so that may be an issue if there are any of the expected scenarios that play out to slow the global growth down even further.

We had also refuted some of the rumors about the company after a spokesperson noted that rumors and blatant false data was being circulated in the market, but a downgrade and a soft market have sent shares even lower.  Our own year-end fair value estimate for GE of $33.75 is now seeming farther and farther away.

With appliances on the block and with issues having swirled around in finance and other units, you have to wonder if the company is going to start listening to more of pleas to break itself up.  We have maintained that there is safety in diversification through time under the conglomerate model and that an outright break-up is likely to only be good during a period of steady and continued bull markets.  Convincing Wall Street with that notion is often a far harder task.  Particularly when you are out of favor.

Jon C. Ogg
June 23, 2008