GE Underscoring Its Core Competency – Infrastructure

ge monogramIn one of the recent brand valuing exercise, GE’s brand value in dollar terms came out at number four. GE’s current number four position remains unchanged since 2001. One would tend to assume and to a certain extent question the fact that how can it remain same with what happened with GE in 2008 and early 2009. There were many factors such as CEO missing the bus on earnings, coming out with everything OK statement, cutting dividends, capital infusion from Buffett, etc. So we as individuals would tend to think that GE brand value should have gone down.

I think the key aspect that we miss here is the GE’s positioning in global economics. When we look at GE we look at window of US economies and US stock markets. We come to a conclusion that GE is toast and does not deserve its top ranking. We tend to forget that GE earns up to 60% of its revenue from markets outside North America. GE’s products, reach, high end markets, and presence in emerging markets, is what makes its brand valuable.

In order to keep with the changing markets it has re-organized itself into four business units three of which are focusing on its core strength or infrastructure. Those new units consist of:

  • GE Technology Infrastructure which includes healthcare, aviation, transportation, and enterprise solutions.
  • GE Infrastructure which will include energy, oil and gas, and water.
  • GE Capital which includes all of financial-services businesses, commercial finance, GE Money, the corporate treasury, and the industry verticals.
  • NBC Universal which remain unchanged.

Three of its business units are primarily focused on infrastructure in all markets domains. This re-organization appears to be following the global trends of infrastructure development in emerging markets. It is estimated that over the next decade of so, infrastructure projects worth $40 trillion are in the making. Furthermore, these themes underscore the message that its business portfolio is being committed towards high growth, high margin markets, and sustainable competitiveness.

Notwithstanding the recent drop in earnings and issues with its financial services unit, I believe GE is very well positioning with its competency in place. As the infrastructure expenditure increase in emerging markets, I except GE to return to its old ways of 8%+ growth rates. The key here is GE is willing to adapt and stay focused around its core competency.

I am a long term investor with my investment horizon of 15+ years. In that context, I believe GE stock price in mid teens is an opportunity which should not be missed.

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