After Striking a Deal, What's an Investor to Think of General Electric and Comcast?

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On Wednesday, Feb. 13, investors in General Electric (NYSE: GE) found their company with $16.7 billion in new cash, after GE decided to sell Comcast (NASDAQ: CMCSA) the remaining portion of NBC Universal that the cable giant did not already own.  The market reacted positively toward both stocks, as GE and Comcast finished the trading day up 3.5% and 3%, respectively.  All eyes are now on the motivations behind the transaction, and where the two companies go from here.

A Simpler, Better GE
GE is a $244 billion diversified industrial conglomerate, and a Dow Jones Industrial Average component. Recently, GE released fourth-quarter and full-year 2012 results. The company reported total revenues that were essentially flat for the year, and a 12% increase in diluted earnings per share from continuing operations. GE reported diluted earnings per share of $1.39.

Selling the rest of NBC Universal will allow GE to achieve its long-held goal of buying back the shares it issued in the depths of the financial crisis.  The company expects to return $18 billion to investors as a result of the deal.  Furthermore, GE will now be able to return focus to its industrial business.

GE has tried very hard to restore its reputation as a company determined to provide shareholder returns.  After slashing its dividend in 2009 during the depths of the Great Recession, the company has increased its payout several times since then, to its current level of $0.19 per share.  Although the dividend isn’t where it was before it was cut, the trend is going in the right direction, and the stock currently yields a very respectable 3.25% at recent prices.

Comcast Flexes its Media Muscles

On the same day of the announcement, Comcast revealed results for NBC Universal, and the numbers were largely positive.  Revenues from NBC Universal's cable networks, such as the Golf Channel, E! and Bravo, rose 3.3% to $8.77 billion last year.  Cable networks have become the main growth driver in the last few years for the industry.  Furthermore, Comcast said NBC Universal's total revenue last year rose 13% to $23.81 billion. Its broadcast TV network, NBC, which had previously been struggling and losing ground to peer networks, saw the biggest revenue growth, gaining 27.4%.

Like GE, Comcast reported solid fourth-quarter and full-year results. The company’s adjusted earnings per share, excluding one-time items, increased 22% to $1.52 on the back of a 12% increase in consolidated revenues. Furthermore, Comcast increased its dividend 20% to an annualized $0.78 per share. In addition, the company also announced that it plans to repurchase $2.0 billion of its stock during 2013.

Bottom Line:  Both Stocks Deserve Closer Attention

At current prices, GE trades at 17 times its diluted earnings per share, and Comcast is trading at roughly 26 times its adjusted earnings per share excluding one-time items.  Both stocks are solid dividend payers, with GE and Comcast yielding 3.25% and 2%, respectively.  GE offers investors a pretty typical value stock profile, with a trailing price-to-earnings multiple about equal to that of the broader market and a market-beating dividend yield.  Growth investors might prefer Comcast, as the company exhibits higher rates of growth in revenues, earnings, and dividends.

In either case, each company is very successful at their core competencies, and the $16 billion transaction will help each focus on what they do best.  I take this deal as a positive for both companies.  GE will now be able to refocus itself on its core industrial businesses, and Comcast will now become a premier media company.  Both dividend and growth investors will see plenty to like in each stock.


Robert Ciura has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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