Here's Why This Top Dow Stock's Brand Is So Important
Oct 26th 2012 4:00PM
Updated Oct 26th 2012 4:08PM
What's in a brand? Any investor who follows the Dow Jones Industrial Average (INDEX: ^DJI) knows how important a strong brand can be -- and how damaging it is when a company's brand becomes tarnished. The index has undergone many changes over the years, and many of these changes were enacted in response to the diminished value of one brand or the strengthening of another.
When the automobile became a common sight on city roads, the Dow responded by adding the strongest auto manufacturers to its exclusive list. The rise of a consumer culture prompted the Dow's inclusion of the most popular department stores. Companies that develop and market advanced technology have found a place in the Dow's ranks in every era from the Electric Age onward. Branding mattered then, and it matters even more today.
Today, we'll be taking a look at the brand behind General Electric (NYS: GE) , a Dow component since 1907 and Interbrand's sixth-most valuable global brand of 2012, to better understand how it was built and how it can help (or hinder) GE in the years ahead.
Building brand value
Thanks to a decade's worth of data from the Interbrand consulting firm, we can analyze GE's branding successes (or failures) over the past 10 years relative to some more standard corporate measures. We'll also dive into some of GE's pivotal public moments to see how those moments helped build a brand to stand the test of time.
Over the last decade, GE's market cap has fallen by 21%. Its annual revenue (with its most recent trailing-12-month revenue serving as 2012's result) has grown by 8%. The company's latest brand value is 3% greater than it was a decade ago. For the most part, this looks like the picture of a stagnant company, but anyone who has paid attention to GE's implosion during the financial crisis is aware of the damage GE Capital has done to the company's public image, not to mention its profitability.
In 2007, before the crash, GE earned $22.2 billion. Its most recent trailing-12-month result is 45% lower. All of GE's progress following the dot-com bust was undone in the financial crisis. Can it regain its footing and improve its status in the public eye in the years to come?
Behind the brand
Interbrand's valuation of GE's brand has been essentially flat since 2010 after a major decline corresponding to its stock-price crash wiped out years of improvement. However, the long-lived conglomerate continues to boast one of the world's strongest brands. Interbrand's 2012 analysis is full of positive notes, particularly highlighting GE Works, GE's recent campaign that "reasserted the brand as the world's maker of 'real' things." This "ultimate trump card" has led to growth in GE's energy infrastructure business, an improving industrials segment, and a turnaround at GE Capital. Interbrand also points out that GE's strength through a period of deterioration in many of the world's top tech brands "remind[s] the world how imagination really works."
GE's history of innovation has produced many things we now take for granted. The company was a pioneer in American radio, founding RCA in 1919. GE also took a leading role in developing the jet engine and remains one of the world's largest jet engine manufacturers to this day, with more than 800 orders from Boeing (NYS: BA) waiting to be filled for use in the 787 Dreamliner. GE was also one of the early computer manufacturers, although it never took a dominant role in the sector the way IBM (NYS: IBM) -- Interbrand's third-most valuable global brand -- did in terms of research, development, and deployment. These developments aren't often considered by consumers or business clients, but they do lend a subtle weight of history to the company's brand.
GE has come a long way from its origins as an electric utility and lighting manufacturer, although it still produces both electricity-generating machinery and lighting for both home and industrial uses. GE's heritage in electricity generation has helped forge it into one of the world's leading energy-generation (or exploration) manufacturers: About 30% of the company's 2011 revenue came from its energy infrastructure segment.
GE has dived right into solar-panel manufacturing, but its choice of technology may put it behind the curve. My fellow Fool Travis Hoium has suggested that a GE buyout of First Solar (NAS: FSLR) would create a global solar-technology leader. Since a staggering 92% of Americans are in favor of more solar-energy development, a concerted push into this favorable alternative energy would do much to burnish GE's brand and reputation in the energy sector, especially after the Fukushima disaster alerted the world to the failure of GE reactors under tremendous physical stress. However, alternative energy-generation products are highly dependent (for the moment) on subsidies and tax credits, which have come under scrutiny in this heated election season.
On the other hand, GE's renewed acquisitive push, which has brought the company into both the mining-equipment and oil and gas equipment arenas over the last couple of years, could undermine this green progress -- not to mention GE's margins. Both industries are highly competitive and host far-more established players than either solar or wind generation. Heavy-equipment maker Caterpillar (NYS: CAT) , for example, had just less than half GE's revenue, and oil and gas leader Halliburton (NYS: HAL) had about a fifth as much revenue over the trailing 12 months, compared to First Solar, which generated only about 2% as much revenue as GE over the same period.
GE Capital is also a danger to GE's brand strength, although this finance arm didn't get quite as much public scrutiny during the TARP furor as most too-big-to-fail banks, despite holding more assets than all but seven American megabanks. It seems that many of GE's positive public moves often come counterweighted with a more unappealing business segment or decision. As the sum of many parts, GE still retains a strong, venerable brand that remains respected throughout the world. But, as with any massive conglomerate, the mistakes of one segment can outweigh the positive momentum of many others.
How will GE continue to rebuild its brand in the months and years to come? And, more importantly, how will these efforts affect its stock? The Fool's premium research service has assembled a team of our top industrial analysts to answer these questions, and many more, for curious investors. If you're still wondering whether GE is worth your investment dollars, or if you're simply looking for a more detailed analysis of its major initiatives, then our analysts can help. Subscribe today for a full year of valuable updates -- click here to get started.
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