Buy Presentation: General Electric Co

1. Buy Presentation: General Electric Co Presentation Prepared By: Connor Herlehy, Max Klein, Danielle Cuneo, Adam Goldstein, Alex Mischel, Liam Joy, Will Brown, Alex Sordello, Josh Savacool, Joe Rowe, and Jason Manrow December 3, 2012

2. Investment Thesis Thesis Stock Price (Five Year) General Electric Co. would make a strong steady growth position in the Ithaca College Investment Club’s portfolio because of its wide economic moat, consistent improvement in operating efficiencies, robust and aggressive industrial growth, quality management, excellent turnover, and sustainable future profitability. GE has established itself as an industry leader through diversified manufacturing, technology infrastructure, energy infrastructure, home and business services, and capital services. In addition, GE’s strong R&D departments have been able to produce long term benefits across the company, operations are well-diversified compared to its smaller competitors, and the company is working its way into obtaining market share throughout many of its products. Moving forward, these factors appear to make GE a steady investment as company-wide growth slowly ensues, providing positive returns for shareholders. Revenues, Net Income, EPS (Five Year)

3. Industry Overview and Recent Trends • The industrial and materials market contains a vast majority of “pure-play” companies, many of which focus on producing for specific purposes. It also includes larger, more multi-faceted companies, like GE that focus on a variety of products for different purposes. The largest competitors in this category include Siemens AG ADR, United Technologies Corp, ABB, and Honeywell International Inc. • Trends and Challenges • Maintaining essential R&D projects that provide strong long-term company-wide benefits • Fighting for market share in specific industries while still remaining profitable (Vestas, GE9X engines) • Dealing with the very cyclical industrial economy and how it reacts to economic downturns globally (shift away from GE Capital) • The need to be able to invest heavily and reduce new market barriers as competition transitions to less entities with more substantial capital. Aggressiveness coupled with production ability is key here. • Ability to shed underperforming subsidiaries (Comcast) and synergize compatible ones to produce strong yearly results. • Upholding a positive public/corporate image by finding ways to conserve energy and uphold the image of a “green” company. Large consumer shift towards eco-friendliness.

4. Company Overview and Operations Company Overview Revenue Stream Breakdown General Electric Co provides services ranging from aircraft engines, power generation, water processing & household appliances to medical imaging, business & consumer financing, media content & industrial products. GE is organized into seven different operating segments: Power and Water Segment-offers generators, controls, and different technology for gas, steam, and aeroderivative Oil and Gas Segment- offers surface drilling/ production systems, compressors, reactors, and industrial power generation Energy Management Segment- offers electrical distribution, power panels, circuit breakers, motors, software and control technology Aviation Segment- offers jet engines, aerospace systems, overhaul services, and component repair Transportation Segment- offers freight/ passenger locomotives, communication systems, underground mining equipment, and energy storage systems Home and Business Solutions Segment- offers home appliances and lighting products Healthcare Segment- offers medical imaging/ technology, drug discovery, disease research, and patient monitoring systems Geographic Revenues Breakdown

5. Recent News • GE received $40 billion in jet engine orders and service agreements at Dubai Air Show. • Emirates Airlines undertook $11B, Etihad Airways undertook $11B, Qatar Airways undertook $3.8B. All GE9X engines/service agreements. • GE9x builds on two decades of R&D in materials science and thermodynamics. GE to spend $200M on GE9X testing this year. GE9X to be the largest and most fuel efficient jet engine ever built. • 10% better fuel burn than the previous model (GE90-11) and 5% better fuel burn than any twin-aisle engine in service by 2020. • GE Propels 3D Printing Market With New Jet Engine Fuel Nozzles. • GE to have 85,000 fuel nozzles printed for its new LEAP engine for smaller aircraft instead of assembling each nozzle with 20 parts. 19 nozzles to go into each engine. • GE to have to invest heavily into 3D market to ensure supply is able to keep up with its demand. Companies like 3D Systems and Stratasys Ltd. are sure to see great opportunities when they can produce. • GE Healthcare introduces Invenia ABUS. • New automated breast ultrasound system said to be the answer the need of detecting additional cancer in women where mammography alone may in insufficient. • Said to improve breast cancer detection by 35.7%. • New technology is designed for ease of reproduction, ease of use, and operator comfort. • GE Reports The New Industrial Internet Could Add $10 to $15 Trillion to Global GDP. • Described as the linking of the industrial revolution and the internet revolution together. Networks, data, and machines will be linked together to remake global industry, boost productivity, and launch a “new age of prosperity”. • Could boost average incomes by 25 to 40 percent over the next 20 years and reinstitute growth levels like those seen in the late 1990s. • By 2025 the Industrial Internet business could be applicable to $82 trillion of output, approximately one half of the global economy.

6. GE’s Marketing Strategy • GE didn’t have a real marketing strategy until recently. They would let their products sell themselves. As businesses were maturing and competition was getting stiffer, the that campaign ceased to be affective anymore. • GE built a framework around principles, people, and process. • Principles dealt with making marketing people part of the operating process becoming more responsible for things like pricing and understanding customer value. • People dealt with making their marketers into 4 distinct sub-types, instigator, innovator, integrator, implementer. • Instigator: always challenging the status quo and trying new ways of reaching the consumer. • Innovator: focused on turning simple ideas into new products, services, or solutions for the customer. • Integrator: building bridges between business segments, functions, and the company and the market. • Implementer: executing all new ideas, products, services, and solutions. • Process dealt with making their whole marketing department work and management over it. Also have regular evaluations assessing new skills that the company could use or are lacking in order to effectively complete the job. • As a result, more and more advertisements and marketing campaigns have sprung up for GE, focused B2B primarily.

7. Valuation & Operating Comparables Valuation Comparables

8. Sector Ratio Analysis Valuation Ratios Financial Strength Profitability Efficiency Price to Sales (1yr) GE: 1.53 Sector: 1.48 Price to Cash Flow (1yr) GE: 7.05 Sector: 17.59 Current Ratio (1yr) GE: 1.12 Sector: 1.78 Interest Coverage (1yr) GE: 11.34 Sector: 22.16 Operating Margin (1yr) GE: 10.81 Sector: 12.08 Net Profit Margin (1yr) GE: 9.42 Sector: 8.56 Receivable Turnover (1yr) GE: 6.9 Sector: 4.72 Inventory Turnover (1yr) GE: 6.09 Sector: 5.29

9. Competitors United Technologies Corp (UTX) 3M Co. (MMM) Strengths Utilizing its cash for debt pay down, stock repurchases, and dividends. Strong presence in the aerospace, residential construction, and commercial building markets. Solid diversification of products within its business segments. Weaknesses Good portion of business comes from federal spending, the defense industry, and construction. If any of these markets were to experience a decline, UTX could be hurt substantially (recent Europe slow down and US cutback on defense spending). Faces headwinds as commodity prices rise. Its products use a lot of copper, steel, and titanium. Fairly high political and Currency risk as large amount of business is offshore. Strengths Strong R&D development capabilities. Heavily diversified business and geographic presence. Strong growth in revenues and profits over recent years. Low beta compared to other companies. Weaknesses Weak inventory turnover ratio which is impacting their inventories and margins. Weak performance in some of their key operating segments. Business units are not working together as efficiently as they could be.

10. Competitors Honeywell International Inc. (HON) Siemens AG (SI) Strengths Very well diversified business portfolio. Strong growth in revenues and profits over recent years. Fairly low beta compared to the industry. Weaknesses Lacks a strong presence in emerging markets. Faces environmental and asbestos liabilities which have so far accumulated to $400M and rising. Trouble finding and keeping strong sales people. Has had some cash flow issues in recent years making investors uneasy. Strengths Strong balance sheet. Lots of cash from recent divestitures and strong operations. Strong European presence compared to other firms. Maintaining market share in foreign countries. Preserved industry margins because of lack of competition in technology innovation. Weaknesses Questionable profitability from its offshore wind contracts in their rush to obtain projects over GE and Vestas. European recession to weigh in on the company’s profits as governments are restricted on spending limits. Lots of foreign currency and political risks. Has a history of impairments and poor operational execution resulting in not-so-great long-term shareholder value.

11. SWOT Analysis Strengths Weaknesses Opportunities Threats Global recognition and reputation. Recently ranks the 14th most profitable company in the world by Forbes. Strength/depth of management team and workers. Diverse portfolio of operations. Environmental initiatives. Strong corporate alliances. Has made some bets on financial markets with bad track records – I.E. GE Capital in 2008. Energy Sector is under-performing. Hit hard by financial crisis in 2008; in recovery mode. Threat to flexibility. Current low stock price due to financial downturn in 2008. Performance in Asian market not completely up to par. Mergers and acquisitions Dominant player in emerging markets. Research and development is intensified. Industrial revenue should increase 7% annually over the next five years. Possible governmental support for some projects. Stiff competition that has a lot of capital to play with as new production and technology becomes available. Information security – I.E. hackers, employee dishonesty, or natural disasters. Many markets susceptible to change and economic downturns, somewhat of a cyclical company. Future Financial crises Government regulation on financial issues and pollution.

12. Analyst Recommendations • Analyst Recommendations and Fair Value Estimates • Credit Ratings • S&P Rating: AA+ • Moody's Rating: Aa3 • Fitch Rating: - • Consensus Rating • Buys: 60.9% • Holds: 39.1% • Sells: 0% • Top Holders as of 11/30/2013 • Blackrock at 5.51% • Vanguard Group Inc. at 4.85% • State Street Corp at 4.04%

13. Recommendation • We recommend that Ithaca College Investment Club purchase 45 shares of General Electric Co. around $26.83, around 3.4% of our portfolio, and maintain this position for 3-4 years. In the case of major economic downturn or another variable causing serious change in the stock’s value in the future, we will reevaluate our holding in GE and take appropriate action.