‘Black Panther’ Should Become Marvel’s Latest Billion-Dollar Movie This Weekend

Black Panther is already the biggest movie of 2018, and now the latest superhero blockbuster from Marvel and Walt Disney is on the precipice of cracking $1 billion in worldwide box-office revenue.

Entering its fourth weekend in movie theaters, the movie still has its claws dug into the top spot at the box office as it debuts in China, the world’s second-largest movie market, for this first time. Black Panther should climb past the $1 billion mark this weekend, having reached $940 million in global grosses during the week, including $22.7 million in its opening-day haul in China on Friday. That gave Black Panther the best opening day gross in China for a Marvel movie since 2016’s Captain America: Civil War, which took in over $30 million on its first day in Chinese theaters on its way to grossing a whopping $180 million in that country overall.

Black Panther would also be the first Marvel movie to reach $1 billion since Civil War cleared $1.15 billion two years ago, and the fifth so far from Disney’s Marvel Cinematic Universe. The movie is already the second highest-grossing Marvel film domestically, with its $520 million haul in North America trailing only 2012’s The Avengers, at $623 million domestically ($1.5 billion worldwide), according to Box Office Mojo.

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Black Panther only needs roughly $60 million worldwide at this weekend’s box office to reach $1 billion after pulling in roughly $122 million globally last weekend. Barring a larger-than-expected drop-off, the film should coast past that milestone.

However, Black Panther could still lose its box-office crown this weekend to newcomer (and fellow Disney film) A Wrinkle in Time. Director Ava DuVernay‘s adaptation of the popular young-adult novel of the same name has been highly-anticipated since Disney made her the first-ever black woman to direct a movie with a budget over $100 million. Disney has been promoting the film heavily for months, though its recent mixed reviews from critics could dampen A Wrinkle in Time‘s opening weekend box-office performance. Variety reports that the film is forecasted to gross roughly $35 million domestically this weekend, which may not quite be enough to stop Black Panther from a fourth weekend of dominance.

Broadcom Shares Surge on Reports that Intel is Considering an Acquisition

Shares of semiconductor company Broadcom surged following a report on Friday that Intel is considering an acquisition.

Broadcom’s stock rose 4% in after-hours trading on Friday to $264.21 after the Wall Street Journal reported of Intel’s interest in acquiring Broadcom, which engaged in a hostile takeover attempt of mobile chip maker Qualcomm.

The Wall Street Journal reported that Intel (intc) was pondering an acquisition of Broadcom as one of a number of possible deals to help Intel remain competitive if and when Broadcom (broad) buys Qualcomm (qcom). A combination of Qualcomm and Broadcom would pose a significant threat to Intel.

Intel, which makes semiconductors for data center servers and personal computers, is the larger of the three companies and has a $244.2 billion market capitalization. Broadcom, which makes wireless and mobile computer chips, has a market value of $109.5 billion, while Qualcomm is valued at $93.3 billion.

For the past few months, Qualcomm has been trying to fend off Broadcom’s unsolicited advances and has rejected multiple Broadcom bids, the most recent being for $121 billion, or $82 a share. Qualcomm has said that each of Broadcom’s bids undervalues it and has also cited regulatory concerns.

Earlier this week, the U.S. Committee on Foreign Investment was reported to be considering an investigation of a potential Broadcom takeover of Qualcomm, which prompted Qualcomm to a shareholder meeting until April. While Broadcom is incorporated in Singapore and also operates a co-headquarters in San Jose, Calif., the semiconductor giants plans to reincorporate in the U.S.

Intel shares were relatively flat in after-hours trading on Friday at $51.90.

Intel has acquired a handful of companies over the past few years like chip maker Altera for $16.7 billion and automotive component and sensor provider Mobileye for roughly $15 billion, but a possible acquisition of Broadcom would dwarf those deals.

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Fortune contacted Intel and Broadcom for comment and will update this story if it responds.

Google Just Indexed Millions of ‘Life Magazine’ Photos Using Artificial Intelligence

Google has used its artificial intelligence to automatically index millions of photographs from the defunct Life Magazine.

The search giant, which debuted a website for the photo project on Wednesday, said it was able to categorize over 4 million iconic Life Magazine photographs without human help. After clicking on a particular label like “skateboarding,” for example, users are shown photos of people performing skateboard tricks along with Wikipedia’s definition of the sport.

Google uses deep learning technology to help its computers better understand objects like dogs or cats in pictures and make its image search tool more efficient to people wanting to see a particular image.

Compared to the core Google search, the photo project’s website is slow to load, especially when there are thousands of images assigned to a particular label like “road.”

Although Google has hosted a Life Magazine archive since 2008, the new website makes using it easier. Searching Life Magazine’s photojournalism for ballet brings up relevant photos alongside the name of the photographer who took the picture, the title of the photo like “Nutcracker Ballet,” and what in the photo Google’s computers were able to recognize, like a dancer.

Although usually accurate, Google’s technology does have some hiccups that highlight some of AI’s current limitations. For instance, under the “skateboarding” label is a photo that is shown sideways of a man wearing a top hat and holding a cane who is performing what looks like a campy musical number. For unknown reasons, the computers mistakenly thought it saw a skateboard in the image.

Additionally, the computer that created the index has come up with some odd categories that human editors likely wouldn’t have. One such label is “identity document,” which brings up photos of people’s passports and railroad tickets as well as a photo of musician Paul McCartney holding a Grammy plaque. It’s likely the computers saw similarities between a typical document and McCartney’s Grammy plaque, which in this case resembled more of a small, commemorative plate than the conventional 3-dimensional Grammy statue.

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Another label, “concrete,” highlights thousands of photos, some of which appear random. There’s a picture of an old tombstone, a photo of a marine boot camp, a picture of a person hunting a snake in a small enclosure, and a photo of the “Roosevelt Raceway” that shows a man—incorrectly identified by the computer as a fisherman— sweeping. While there indeed seems to be some sort of concrete object involved with each photo, it’s still an unconventional way to group all the pictures together considering they are displaying very different subjects.

In addition to the misidentified photos, the technology also failed to create labels for some obvious topics. They include some of Life Magazine’s most iconic photos.

For instance, the computers did not create a label for the “Vietnam War,” a subject that should include some of Life Magazine’s best known and most powerful photos. The computer did create is a “war” label, but it appears to have grouped over 23,000 photos, making searching for a particular picture difficult.

Venezuela to sell petro cryptocurrency via Dicom forex system

CARACAS (Reuters) – The Venezuela government will start auctioning its new petro cryptocurrency to private companies via its Dicom foreign exchange platform in a few weeks, Vice President Tareck El Aissami said on Tuesday.

The OPEC country last month began selling the new digital token, which President Nicolas Maduro has said will be backed by oil reserves, in a private sale to investors. Maduro says the petro will help skirt U.S. financial sanctions.

Opposition critics call the petro an illegal debt issue, and the U.S. Treasury Department has warned that it may violate sanctions and thus constitutes a legal risk for investors.

“The petro is going to be auctioned on Dicom,” El Aissami said in a meeting with businessmen broadcast on state television, adding that companies will be able to use petros to pay for imports of raw materials.

“The petro is going to be our powerful international currency, above the dollar.”

It is not immediately evident if and how the petro can function as foreign currency or how it would help Venezuelan businesses with international commerce transactions.

Foreign companies are unlikely to accept it as payment given the legal doubts surrounding it, and few investors have publicly announced having purchased it.

El Aissami also called on local banks to buy the petro at a discount during the preliminary phase, which ends on March 20.

During this phase, petros can be acquired with “dollars, euros or any other currency,” he said, and may be held by banks as assets on their balance sheets.

Reporting by Corina Pons, writing by Brian Ellsworth; Editing by Susan Thomas

Cryptocurrencies are risky for consumers, says BoE's Haldane

LONDON (Reuters) – Cryptocurrencies pose a risk to British consumers, though not to the financial system as a whole, the Bank of England’s chief economist, Andy Haldane, said on Tuesday.

FILE PHOTO: A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017. REUTERS/Benoit Tessier/Illustration/File Photo

“There’s lots of potential risks there, one of which is the danger to the consumer from buying into this stuff,” Haldane said in a BBC television interview.

Bitcoin BTC=, the best known cryptocurrency, soared in value from around $1,000 at the start of 2017 to almost $20,000 in mid-December, before tumbling below $6,000 last month and then staging a partial recovery.

Haldane’s concerns are similar to those expressed by BoE Governor Mark Carney in a speech on Friday, and previously by Britain’s Financial Conduct Authority.

Many global regulators have warned about cryptocurrencies this year and China has banned financial institutions from processing them. Carney said this would be a step too far, given the potential of the underlying technology to improve payments and asset clearing and settlement.

Haldane said the BoE continued to monitor cryptocurrencies, and that at less than 1 percent of total global wealth, they did not pose a big danger to the world’s financial system.

But asked if he would invest in cryptocurrencies himself, Haldane said he was very risk averse, and would not.

Reporting by David Milliken; Editing by James Dalgleish

Here’s When Apple Might Release a Cheaper MacBook Air

Apple could release a new MacBook Air in the coming weeks.

In a note to investors over the weekend, KGI Securities analyst Ming-Chi Kuo said that he expects Apple to release a new MacBook Air in the second quarter of 2018. Kuo, who is one of the more reliable Apple rumor sources, said that the revamped MacBook Air could come with “a lower price tag,” according to MacRumors, which earlier reported on his note.

Apple has offered only incremental updates to the MacBook Air in recent years and hasn’t offered a major upgrade since 2015. Since Apple now offers a thin and lightweight MacBook and discontinued the 11-inch MacBook Air model. Some industry watchers have suggested the company might eliminate the MacBook Air altogether. Instead, the company would stick with a thin MacBook and a higher-end MacBook Pro on the notebook side of its computer lineup.

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Kuo didn’t say in his research note exactly what the MacBook Air might offer or whether it would come with a major or minor update. He also didn’t say exactly when it could launch in the second quarter. However, Apple is rumored to be planning a March press event, where it could unveil the lightweight computer. The company also typically hosts a keynote address at its Worldwide Developers Conference in June, where it could showcase a new computer.

Apple, of course, has remained silent on its plans, and will likely remain so until it’s ready to hold a press event. The company did not immediately respond to a Fortune request for comment on Kuo’s note.

Qualcomm-Broadcom Merger Battle Grows Angrier

The ugly rhetorical war between semiconductor companies Broadcom and Qualcomm got even uglier on Monday.

Broadcom wants to take over Qualcomm, most recently offering $79 per share, or $117 billion in total, and putting up a slate of candidates for election to Qualcomm’s board. The offer was cut from $82 a share, or $121 billion, after Qualcomm raised its bid for NXP Semiconductors. Qualcomm has so far resisted the unsolicited bid as too low and fraught with regulatory challenges.

Over the weekend, regulators did get involved. The government’s national security merger review body, called the Committee on Foreign Investment in the U.S., asked Qualcomm to delay its scheduled shareholder elections this week so the committee could continue reviewing the possible merger. The committee is charged with ensuring that technologies or other resources critical to national security don’t fall under the control of adversaries.

That prompted a fusillade from Broadcom, with an equally accusatory response from Qualcomm.

Broadcom said it would cooperate with the CFIUS review but added that it had just learned that the investigation was due to a secret, voluntary request from Qualcomm in January.

“This was a blatant, desperate act by Qualcomm to entrench its incumbent board of directors and prevent its own stockholders from voting for Broadcom’s independent director nominees,” Broadcom said in a statement. “It is critical that Qualcomm stockholders know that Qualcomm did not once mention submitting a voluntary notice to CFIUS in any of its interactions with Broadcom to date.”

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Later on Monday, Qualcomm fired back, saying Broadcom’s response was part of “its now familiar pattern of deliberately seeking to mislead shareholders and the general public by using rhetoric rather than substance to trivialize and ignore serious regulatory and national security issues.”

Qualcomm went on to challenge an assertion that wasn’t exactly what Broadcom had asserted. “Broadcom’s claims that the CFIUS inquiry was a surprise to them has no basis in fact,” Qualcomm wrote. “Broadcom has been interacting with CFIUS for weeks and made two written submissions to CFIUS.”

Broadcom had not claimed that it was surprised by the CFIUS investigation, but that it had not known that Qualcomm’s voluntary request was behind the probe.

Shares of Qualcomm (qcom) lost almost 2% to hit $63.71 in midday trading on Monday and remain well below Broadcom’s offer price. Broadcom’s (avgo) shares also dropped less than 1% to $249.63.

Analyst Stacy Rasgon at Bernstein Research doesn’t see much likelihood that the CFIUS national security review would find grounds to block a merger. Broadcom is the middle of moving its legal domicile back to the United States from Singapore, which should be completed in the next few months. The company already is run from the United States, has many U.S. employees, and owns critical semiconductor operations and technologies, Rasgon noted.

“Nevertheless, politics can and does have a life of its own, and the early investigation (warranted or not) is proceeding,” he wrote.

The entire CFIUS review could be moot once Broadcom moves its legal headquarters back to the United States, analyst Angelo Zino at CFRA Research, noted. Broadcom “expects to complete its redomiciliation process to the U.S. by May 6, at which point the proposed acquisition will not be a CFIUS covered transaction,” Zino wrote in a report on Monday.

McDonald's Just Had the Single Worst Day in Its Company's History. Here's What Happened

Have you tried the new not-really-a-Dollar Menu at McDonald’s?

According to the numbers, you probably haven’t. And that’s hurting McDonald’s, the world’s second-largest restaurant chain, to the tune of billions of dollars.

So much so, that McDonald’s just suffered the worst day in its entire history, at least by one metric: the total dollar drop and reduction in value that its stock lost in just one day of trading.

Shares of McDonald’s fell 4.8 percent Friday. The company is still worth $118 billion, so that means it lost enough value that theoretically you could have bought its much smaller competitor Wendy’s with the amount of the loss, and had a lot left over. 

That drop makes this reportedly the biggest one-day dollar decline the restaurant has ever suffered, at least going back to 1972 when data was first tracked.

Meantime, it’s been a rough two months so far. Traders who bet against McDonald’s stock by short selling it have made almost $200 million this year, according to another report.

I feel like I should point out that yes, while people are calling this McDonald’s worst day, it’s purely from a financial perspective. Nobody was physically hurt or anything, although from a corporate point of view it’s the finances that really matter.

The reason behind the drop is twofold, according to analysts: 

First, slow sales of the new “$1 $2 $3 Dollar Menu.” They expected it to boost the top line, and it’s just not working.

Second, an influential analyst’s report that spelled out not just how “disappointing” these sales have been, but also how the bit marketing investment in this revamped menu item may have had a ripple effect that hurt sales of other menu items, too.

The report came from David Palmer, an industry analyst at RBC Capital Markets, as excerpted on Marketwatch:

“Our sense is that the $1, $2, $3 platform stole attention from local marketing, particularly at breakfast, which likely slowed as a consequence. … In addition, we believe the menu’s position as a variety play… lacked the ‘hero’ item necessary to resonate with value-conscious consumers.”

“Lastly, we believe McDonald’s early signaling of this initiative may have invited a flurry of competitor responses and diminished its overall impact.”

That middle line, about the lack of a “hero” item, further explained: There are no french fries on the “$1 $2 $3 Dollar Menu.”

That may be the real scandal. And it makes me a little sad.

Maybe the right word is more “wistful” or “nostalgic.” Maybe you’ll relate in some way.

Years ago, when I was in college, my friends and I kept odd hours. Sometimes we were studying or writing. Other times, we were up to … less productive pursuits.

In the middle of the night in the middle of the week, we’d get hungry. And there was only one place within traveling distance of our college to get anything to eat: the McDonald’s inside a rest area on the southbound lanes of Interstate 95 in Connecticut.

What would starting, broke college students buy in the early morning hours on a random Wednesday? Burgers and fries from the Dollar Menu.

Yes, way back when, when I had almost no money and was starving, Mickey D’s was there for me and my friends. For old time’s sake, I think I’ll stop by and try them out again.

Maybe even splurge a $3 Egg McMuffin. Watch for a new analyst’s report, right?

6 Things Smart People Do to Have Really Interesting Conversations

Next time you go to a traditional ‘networking’ event, a cocktail party or dinner, do us all a favor: lose the elevator pitch. That approach is quickly losing relevancy in making authentic connections that could open up doors for you.

Instead, your first order of priority is to take the attention off of yourself and put it squarely on the other person sitting or standing across from you. You start by asking the right questions and listening more than you speak (more on that below). And, of course, always be conscious of having open and positive body language.

Try any of these useful tactics to keep you on track to having exceptional conversations. Now you’re off to the races. 

1. Become genuinely interested in the other person. 

George Mason University psychologist Todd Kashdan, author of Curious? determined that being interested in others is more important than being interesting yourself. “It’s the secret juice of relationships,” stated Kashdan. So, whatever you do, talk in terms of the other person’s interest. You’ll be surprised by the outcome.

2. Show those pearly whites.  

According to Psychology Today, research has determined that smiling can make us appear more attractive to others. It also lifts our mood as well as the moods of those around us. Most of us aren’t fully aware of when we’re not smiling. Make a habit of it and start smiling.

3. Give the gift of a ‘five-minute favor.’

Five-minute favors are selfless giving acts, without asking for anything in return from the person whom you’re offering help. Examples of five-minute favors include: sharing knowledge; making an introduction; serving as a reference for a person, product, or service; or recommending someone on LinkedIn, Yelp, or another social place.

4. Listen more. Speak less. 

Want to create a great first impression? Let the other person speak without interruption. Yes, I’m talking about parking your thoughts and avoiding jumping in and finishing the other person’s sentence or waiting impatiently for your chance to respond. When you actively listen, it will draw the other person to you with equal or greater interest. So go ahead, give the other person your full attention. What you’re communicating is “I am interested in what you have to say.” 

5. Make the other person feel important–and do it sincerely.

The best conversations with someone you just met are initiated by wanting to learn about the other person: What they do, how they do it, and why they do it. This goes back to having a high curiosity quotient. By wanting to learn from someone — even someone younger and less experienced than you — you will garner an immediate and positive first impression.

6. Tell a good story.

So now that you’ve captivated their attention, they probably want to know about you, so it’s your turn to shine. Rather than boring them with work or business related lingo (that will come later), it’s good to have a few go-to stories you can pull out of your hat to keep the momentum going. Have stories you can share that have been tested with other audiences and found to be reliably funny, entertaining, informative, or engaging. Scott Adams, author of How to Fail at Almost Everything and Still Win Big: Kind of the Story of My Lifesuggests putting your focus on stories about other people, rather than things, because most of us find human behavior fascinating.

Closing thought.

If you haven’t caught on yet, the key for your new social approach is this: you take the initiative and make the conversation about the other person. People love to talk about themselves–if they have something worth talking about that adds value to the conversation. Once they know you’re not a wacko, by asking a genuine question first (try “what’s your story?”), they’ll appreciate your showing interest. This selfless act of putting the spotlight on someone else makes you the more interesting person in the room.

Did GE Just Bottom?

Source: DaytonDailyNews.com

General Electric (GE) dipped below $14 this week, seemingly for the first time since 2009/2010, a time when the company was just beginning to climb out of the messy financial crisis. I think it’s noteworthy to mention that back then there was a freeze-up in the financial system that threatened to prevent the flow of liquidity to GE. This scenario would have essentially resulted in a bankruptcy for the company if credit was not made available immediately. Aside from this moment in history, you would have to trace GE’s price back all the way to early 1996 to see the company trading at a comparable price. So, is GE in as dire shape as it was amid the financial collapse? Or is the stock finally trying to put in a bottom as it tests the nearly decade-low $14 level?

Source: Nasdaq.com

Although it is difficult to point to an exact price when the stock may hit a long-term bottom, I am convinced that this point is not far from the current price. GE has extremely valuable businesses, and the current crisis the company is experiencing is one of confidence, perpetuated by years of mismanagement. Much of the negative news is now baked into GE’s share price, and any shift in news flow to a more positive tone should result in a higher share price for the company. Moreover, there is a price point at which prominent investors will begin to recognize significant value in the company, and could begin to acquire substantial stakes in the company. Furthermore, a valuation breakdown of GE suggests the stock is trading at a significant discount to the underlying value of GE’s businesses.

So, How Bad of Shape is GE in?

There is no denying it, GE has seen much brighter days. The company is going through a period of decreased profitability, which has forced GE to cut its sought-after dividend. Moreover, the recent insurance unit debacle had resulted in a massive charge of $6.2 billion, and will require another $15 billion to recapitalize the unit in the upcoming years. If that weren’t bad enough, the company’s pension obligations are underfunded by roughly $31 billion, the greatest shortfall out of any U.S. company. And then there is the recent announcement of the SEC investigation. GE seems to be under a relentless barrage of negative news coverage and the stock is getting hammered perpetually.

However, most of these developments have been known about for months, and are no surprise to investors by now. Thus, the following issues should be largely factored into the ultra-low share price as is. Also, the SEC investigation should have a very limited effect on the company long term. If any irregularities are found and that is a big if, GE is likely to be let off the hook with a slap on the wrist, a relatively benign fine most likely. The pension liabilities are also likely to get resolved over a prolonged period of time, and should have a limited effect on overall future profitability.

As to the question which shoe will GE drop next? Perhaps there are no more shoes to drop. What if these are the last significant skeletons GE has in its closet? There don’t appear to be any fundamental/structural issues at GE. The issues at hand are largely transient in nature, are likely to get resolved over the next few years, and should not significantly impact GE’s performance over the long term. In the meantime, the stock has hit what appear to be generational lows while GE’s businesses still hold significant value.

GE’s Value

It is said that the market is always right, and an argument can be made that this statement is true. However, at certain times, due to significant shifts in sentiment, the market can cause prices to become drastically disconnected from fundamentals. We saw this occur in the dotcom boom, with mortgage-backed securities, and this often occurs at a time of extreme sell-offs. Sometimes panic and extreme pessimism cause stocks to get sold off and become extremely cheap relative to their “true value.” I am not saying that GE is necessarily at this drastically oversold level now, and the stock could slide further, but a breakdown of its businesses does suggest that the company’s “business value” is worth significantly more than the market is currently giving the company credit for.

GE’s Businesses: The Good, The Bad, and The Ugly

GE’s current enterprise value is roughly $192 billion. However, the value of GE’s businesses appears to be significantly higher if the units are valued independently. For instance, GE’s top enterprises, the Aviation and the Healthcare segment, could be valued at roughly $200 billion alone. If we look at GE’s 2017 full-year financial results we can see that certain segments performed extremely well, but the predominant destructive force, the troubled Capital segment, weighed down the entire company dramatically.


GE Enterprise Value data by YCharts

The Good

Let’s start with GE’s crown jewel, its coveted Aviation business. This segment generated $27.38 billion in revenues last year, illustrated revenue growth of 4%, a healthy profit margin of 24.3%, and brought in an impressive $6.64 billion in profit. If we apply a relatively modest valuation of 19.5 times trailing earnings we can value this unit at roughly $130 billion. Comparatively, United Technologies (UTX) trades at 23.25 time trailing P/E.

The Healthcare segment, another top performer at GE generated revenues of $19.12 billion last year. The unit showed yoy revenue growth of 5%, demonstrated a very healthy 19.7% profit margin, and brought in $3.45 billion in profits. If we apply a trailing multiple of 22 times earnings, roughly consistent with the industry’s average, we arrive at an approximate value of $75 billion for this segment. Competitors such as Boston Scientific (BSX), Medtronic (MDT), and others have significantly higher trailing P/E ratios upwards of 30.

GE’s Renewable Energy segment may be one of the more underestimated units. It showed significant revenue growth of 14% last year. Moreover, as the world moves towards increased use of renewable forms of energy, this segment is likely to perform extremely well going forward. Renewable Energy brought in revenues of $10.3 billion, showed a profit margin of 7.1%, and delivered a profit of $727 million. Using a valuation of 25 times trailing earnings, we arrive at a value of $18 billion for this unit.

Source: Pinterest.com

GE’s Oil and Gas segment also appears to be an underestimated property. Oil has increased in value significantly over the past few years and is likely to continue going higher due to increased inflationary pressures and growing demand. Therefore, this segment should continue to do well going forward, and is likely to increase in value significantly down the line. Moreover, despite the volatile oil prices of last year, GE’s oil and gas segment performed relatively well, suggesting that future returns could be much better than many analysts envision.

Last year the oil and gas segment brought in revenues of $17.22 billion, had an impressive revenue growth of 34%, a profit margin of 5.2%, and showed a profit of $900 million. If we apply a trailing earnings multiple of 22 to this segment, the approximate value of this unit comes to $20 billion. Most competitors like Halliburton (HAL), Schlumberger (SLB), and other competitors can’t show P/E ratios for last year due to mounting losses because of wildly fluctuating oil prices, operational difficulties, and other setbacks.

The Bad

Now that we’re done with the good, let’s move on to the bad, GE Power. Although the Power segment’s revenue of $36 billion appears impressive, the rest of the unit’s metrics, not so much. Revenue growth in the Power business was negative, at -2%, profit margin was just 7.7%, profit came in at $2.78 billion in 2017, down by 45% on a yoy basis. The drastic drop in profits is likely a transient phenomenon due to a reshuffle in the company’s power and lighting segments. Therefore, it is not likely the start of a long-term trend. However, given the circumstances, it is difficult to assign a trailing P/E of higher than 12 to this segment, which gives it a value of roughly $34 billion. Nevertheless, I do think that this unit can regain some of its value if GE improves its profitability position. For instance, if we value the unit according to 2016’s earnings, at a 12 multiple the segment would be worth over $60 billion. This could be a low point for EPS in the power segment, therefore the unit’s value could expand going forward.

Another struggling segment, GE’s Transportation unit experienced a revenue drop of 11% to $4.18 billion on a yoy basis. However, the unit is quite profitable with a healthy 19.7% profit margin, and a profit of $824 million. An 11 trailing P/E multiple provides a value of roughly $9 billion for the transportation unit.

GE Lighting showed revenues of $2 billion, but experienced a sharp drop of 60% in revenues last year. A profit margin of just 4.1% appears a bit soft, and the unit brought in a profit of just $93 million. If we put a 10 times trailing P/E multiple on this segment, a value of around $1 billion is derived.

The Ugly

Now the ugly, GE Capital. This unit clocked in a loss of $7.6 billion last year. Moreover, GE is now on the hook to recapitalize the unit’s insurance segment to the tune of $15 billion. Therefore, this segment can be valued at a negative number, – $15 billion. GE Capital is an enormously troubled unit that has apparently been mismanaged worse than any other GE asset. The component is responsible for numerous losses at GE, including a $6.2-billion charge last quarter, and the $15-billion insurance related unfunded liability. The Capital unit is one of the prime sources for trouble at GE.

GE’s Combined Value

  • Aviation: $130B
  • Healthcare: $75B
  • Renewable Energy: $18B
  • Oil and Gas: $20B
  • Power: $34B
  • Transportation: $9B
  • Lighting: $1B
  • Capital: – $15B
  • Total Value: $272B
  • Enterprise Value: $192B
  • Apparent Disconnect: $80B

GE’s Problem is One of Management

GE’s biggest problem is one of management. However, a turnaround effort appears to be in the works. The days of Jeff Immelt’s double jet travels are over. If there was a time GE’s plundering management could operate in relative opaqueness, that time has probably come to an end. The company’s management is going to be under a microscope for the foreseeable future. Shareholders, newly appointed board members, regulators, pundits, and other market forces are closely observing GE with a few crucial factors in mind. Is the company reforming its culture? Is management effectively cutting costs? Can the company do a better job managing its various businesses? etc., etc. The bottom line is that with so much pressure and scrutiny stacked up against GE, the company’s management may have no choice but to get its house in order.

Source: MalaysiaGlobalBusinessForum.com

Shift in News Flow

Another element that is likely to play a favorable role going forward is a possible change in news flow. There has been a continuous and overwhelming drumbeat of negative news flow surrounding GE for the better part of a year now. The stock has cratered by more than 50%, as about $150B worth of value has been erased from GE’s market cap in that time. However, at some point the news flow will change to a more positive tone, and it’s likely to occur sooner than later. Some positive developments are already starting to materialize. GE recently appointed three new board members. A shakeup at the board suggests a constructive step towards better governance. Management is continuing to work on spin-off efforts, and news of asset sales should be perceived as a positive element.

Institutional Buyers

Big institutional buyers and activist investors could be warming up to GE at current levels. Even Warren Buffett recently commented that GE has some great businesses that he understands, adding that he would seriously look at GE “at the right price.” Buffett has experience investing in GE at distressed levels, as he became a large shareholder during the days of the financial crisis. Also, Mr. Buffett has about $116B in cash at Berkshire (NYSE:BRK.A) (NYSE:BRK.B) to spend, and a great industrial business, with an iconic name like GE, which he understands, could make a lot of sense around these levels.

Technical View

Technically GE is bouncing around $14 support. This level may not hold in the short term, especially if the overall market continues its slide. However, at these already depressed levels, unless the stock market falls through recent correction lows GE’s downside is likely to be very limited here. Moreover, the RSI and CCI are showing that the stock has been in relative oversold territory for about 6 weeks now. A possible reversal in momentum from negative to positive seems likely, especially if some favorable fundamental elements begin to materialize.

Source: StockCharts.com

Bottom Line

GE’s stock has been battered over the past year, and for good reason. The company’s performance has declined noticeably, the dividend got cut in half, and some alarming skeletons have been exposed. However, things are clearly changing at GE. Management appears to be making some difficult decisions, and the company’s corporate structure is under the scrupulous eye of various market participants pressing for reform. Furthermore, a shift to a more favorable tone in news flow could change investor sentiment, and certain activist and institutional investors may start looking to enter the stock or acquire parts of the company.

Ultimately, it appears that the badly battered GE company is already significantly undervalued. The $80B disconnect between the company’s $192B enterprise value and the $272B assessed value of its businesses suggests that the stock’s fair value is roughly 42% higher from current levels, which would put GE’s share price at around $20. Once the price stabilizes, market participants could bid the stock up aggressively into year’s end, especially once favorable fundamental developments begin to emerge. Therefore, my year-end price target range for GE is $19-21.50.

Disclaimer: This article expresses solely my opinions, is produced for informational purposes only, and is not a recommendation to buy or sell any securities. Investing comes with risk to loss of principal. Please always conduct your own research and consider your investment decisions very carefully.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in GE over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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