Is General Electric A Better Stock Than Honeywell and 3M?

General Electric Company (NYSE:GE) is up 22% so far in 2012, outperforming the S&P 500 based largely on a strong performance of its stock in the month of September. NBC Universal is gone from the long-running conglomerate’s portfolio of businesses, but GE still has diversified business interests including energy infrastructure, aviation, healthcare, and finance. Revenue at GE edged up 2% in the second quarter compared to a year ago, but a loss from discontinued operations drove net income down 16% (earnings from continued operations were about flat). The large Energy Infrastructure segment saw a good increase in revenues and operating income, but its gains were offset by lagging performance in the other business segments and an increase in corporate overhead. Due to a poor first quarter, GE ended up reporting a 2% decrease in total earnings from continued operations before taking into account its previously mentioned losses.

GE’s market capitalization is currently about $240 billion, which places its trailing P/E multiple at 19. The company trades at 13 times earnings estimates for 2013, as Wall Street analysts expect that it will substantially grow its earnings per share over the next several quarters. General Electric Company pays a dividend yield of 3.0%, which is not as high as some industrial companies but is a positive for investors. The combination of that yield and the forward P/E of 13 is attractive for such a large company, but of course GE would have to hit the Street’s earnings targets first.

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George Soros liked General Electric Company during the second quarter, increasing his stake in the company to 8.6 million shares according to Soros Fund Management’s 13F filing. It was one of his five largest long equity positions, per the disclosure (see more stock picks from George Soros). Billionaire Ken Fisher’s Fisher Asset Management had the largest position out of all the filers in our 13F database, reporting ownership of 31 million shares (find more stocks Fisher Asset Management owns). Adage Capital Management, managed by Phil Gross and Robert Atchinson, sold shares on net during the quarter but still closed June with 13 million shares in its portfolio (research more stocks that Adage has been buying and selling).

To construct a peer group for GE, we would look at electronics and engineering company Siemens AG (NYSE:SI), conglomerate 3M Co (NYSE:MMM), industrial manufacturer Honeywell International Inc. (NYSE:HON), and diversified machinery company Danaher Corporation (NYSE:DHR). At market capitalization between $36 and $90 billion, these companies- while certainly smaller than GE- are also large caps. Siemens and 3M trade at 15 times trailing earnings, a discount to GE’s own multiple. 3M’s business has been about unchanged over the last year, and it trades at a forward P/E of 13 with a 2.5% dividend yield. So it is about even with GE on a value basis if the larger company can deliver its expected growth. Siemens saw its revenue grow 9% last quarter compared to the same period in 2011, and earnings were up even higher. The stock price is down over the last year, and it is about flat year to date. We might look at it further, but the market seems to be rejecting it as a value play.

Honeywell also saw revenue and earnings growth during the second quarter of 2012 relative to a year earlier, and assuming that it continues to grow in line with analyst expectations it trades at a forward P/E of 12. Its dividend yield- 2.5%- is also very slightly below GE’s, and it seems priced about even on an earnings basis with better recent growth. It could be a better buy. Danaher trades at trailing and forward P/Es of 17 and 15, respectively, so its positioning is as a lower-growth company than many of these other peers. Its revenue came in higher last quarter, but earnings were down. We don’t think it is as good a buy as Honeywell or 3M.

We think GE’s recent gains have gotten the stock price a bit ahead of its fundamental value. 3M is less dependent on near-term growth to attain value status, while Honeywell seems to have a better growth record and carries a slight discount to GE on a forward basis.