On Friday, General Electric Co. announced a first-quarter profit substantially lower from last year’s results, dragged down by weak earnings at its embattled finance division. Net income fell 35% to $2.9 billion, or 26 cents per share. GE Capital earned $1.1 billion in the quarter, down 58% from a year ago. The company acknowledged headwinds are facing the division but said it has taken efforts to stabilize the unit and maintained the division is on track to be profitable for the full year. GE reiterated that stress-test results on GE Capital will show the company will not need to raise additional capital, even under the Federal Reserve’s “adverse-case” scenario. GE’s CEO Jeff Immelt reiterated the company’s goal to reduce costs by up to $3 billion for 2009.
At a market price of $12.63, the company is now trading near our $12.68 estimate for intrinsic value in this market environment, as reported on our 3/10/2009 article. However, we believe GE has the potential to consistently grow its intrinsic value through greater earnings power, so we do not see a reason to exit our GE position any time in the near future.