Lehman believes General Electric (GE) may be close to a (relative) bottom because of the stock’s previous trends relative to the S&P. (Disclaimer: Past performance does not necessarily indicate future results…):
History suggests that shares of GE could trough at a 25% discount to the S&P500. Shares are currently at an 18% discount to the market on concerns over the financial services exposure, suggesting shares could be near a bottom. We see overhang persisting through the current period of financial market dislocation, but we continue to see the potential for GE to return to a premium of up to 20% as the focus returns to the double-digit earnings growth we see over the long term….
We view the 1989-1992 timeframe as an indicator of where GE’s valuation could trough, given the similar level of concern in that timeframe around pressures at GECS. Valuation troughed at 25% discount, and despite pressure on 1/3 of the business exposed to LBO and RE lending, GECS saw positive earnings growth over that time.
Lehman reiterates OVERWEIGHT on General Electric (GE), target price $37.
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