Tilson’s 2015 Value Investing Seminar Slides: General Electric And Union Pacific

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Whitney Tilson’s slides from the July 2015 Value Investing Seminar discussing his General Electric and Union Pacific stock purchases.

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Two Blue-Chips I Bought This Week: Union Pacific and General Electric

General Electric

  • Founded in 1889, GE is the only one of the original 12 companies still in the Dow Jones Industrial Average
  • The 17th largest business in the world by revenue in 2014, with $148 billion
  • GE is shedding most of GE Capital and its appliance business, so revenue is expected to decline by ~15% to $125 billion in 2015
  • Earnings are expected to decline from $1.51 in 2014 to $1.38 in 2015 (excluding one-time charges)

General Electric's Revenue Is Flat Over the Past Eight Years

General Electric's Profit Margin Has Been Flat and ROE Has Declined Over Two Decades

General Electric

Not Surprisingly, General Electric’s Stock Is Where It Was 17 Years Ago

General Electric

General Electric’s Remaining Businesses Are of Exceptional Quality

General Electric


  • Stock price (7/9/15): $26.26
  • Market cap: $261 billion
  • P/E (2015 adjusted): 19.0x
  • P/E (2016 adjusted): 16.6%
  • Dividend yield: 3.5%

Why Is the Stock Interesting?

  • GE is selling assets more rapidly than expected and getting better-than-expected prices
  • When GE is finished shedding assets next year, what remains will be one of the premier global industrial businesses with high margins, solid growth and strong backlogs
  • The stock will likely command a premium multiple (P/E of 16-20)
  • Analysts project earnings of ~$2.00 in 2018, but I believe earnings will be $2.50, assuming:
    -The Alstom deal goes through
    -Power & Water margins rebound to 2009-13 levels (20%) by 2018
    -Share repurchases average ~6% annually in 2016-18
  • At 16-20x $2.50 results in a share price of $40-$50 in 2018, 54-93% above today’s levels – and you get paid a 3.5% dividend while you wait

General Electric Today Reminds Me of Microsoft 2½ Years Ago – It Had Been Flat for ~15 Years and Is Up 60% Since

General Electric

General Electric Also Reminds Me of AIG ~3 Years Ago When It Was In the Midst of Selling Off Assets

General Electric

Union Pacific

The Railroad Industry: What Can Happen When an Industry Consolidates

  • The semiconductor, U.S. airline, and auto rental industries today remind me of the railroads a decade or so ago: a lousy, capital-intensive industry – characterized by cut-throat competition, low margins, low returns on capital, and high debt levels – consolidates and slowly turns into a much better industry
  • When this happens, there can be a decade-long tailwind of strong top-time growth combined with improved pricing, margins, and returns on capital, leading to rapidly rising earnings
  • This, combined with investors awarding these earnings a higher multiple, can lead to tremendous long-term stock returns (the worst performer is up 7x!):

Union Pacific

See full slides below.

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