Honeywell International Inc. (HON), United Technologies Corporation (UTX): General Electric Company (GE) Wants Out of Consumer Credit

Although we don’t believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes — just in case they’re material to our investing thesis.

After the U.K. Parliament voted against a military strike against Syria yesterday, the momentum for retaliatory action against the Assad regime has slowed. This may have helped prevent another slide in U.S. stocks this morning. The S&P 500 and the narrower, price-weighted Dow Jones Industrial Average are relatively flat this morning, down 0.17% each as of 10:05 a.m. EDT.

Nevertheless, with its credibility on the line, the Obama administration seems determined to see this through. I believe the odds of imminent military action remain high.

GE says “no mas” to consumer credit

Now it’s time to highlight a good old fundamental stock story. The front page of this morning’s Wall Street Journal features an article headlined “GE Set to Exit Retail Lending,” according to which financial-industrial conglomerate and Dow component General Electric Company (NYSE:GE) is preparing to divest its U.S. consumer lending business, part of financing arm GE Capital.

The U.S. consumer finance business issues store credit cards — including one on behalf of Walmart — to 55 million Americans and represents roughly $50 billion in loans outstanding.

In the wake of the credit crisis, General Electric Company (NYSE:GE) has sought to reduce the proportion of profit that GE Capital contributes to the overall pie. While that process is ongoing, the proportion remains substantial — 45% in its most recent quarter. CEO Jeff Immelt wants to reduce that number to 30%.

Speaking of Mr. Immelt, he needs to look busy, as he’s under a certain amount of pressure. Why? Just take at the share graphs: General Electric Company (NYSE:GE) has underperformed its conglomerate peers Honeywell International Inc. (NYSE:HON) and United Technologies Corporation (NYSE:UTX) and the S&P 500 year to date, over the past 12 months, and over the trailing five- and 10-year periods!

GE Chart

GE data by YCharts.

Part of that underperformance is attributable to investors’ unwillingness to award the same multiple to a business that derives a substantial proportion of its earnings from lending activities. As of yesterday’s close, the market was valuing General Electric Company (NYSE:GE)’s shares at 13.4 times the estimate of the next 12 months’ earnings; Honeywell International Inc. (NYSE:HON) and United Technologies Corporation (NYSE:UTX), on the other hand, both sport multiples closer to 16.

Will spinning off the U.S. consumer finance business help bring General Electric Company (NYSE:GE)’s multiple in line with its peers? It’s a step in the right direction, which is important, because in a low-growth environment, multiple-expansion could be a useful source of returns over the next several years.

The article GE Wants Out of Consumer Credit originally appeared on Fool.com and is written by Alex Dumortier, CFA.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool owns shares of General Electric Company. 

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!