General Electric's Gem Should Be Sold

One of the largest and most significant assets on the books of General Electric (NYSE:GE) is the company’s Healthcare segment. The operation was founded in 1994, but its roots trace back to the late 1800s under the name Victor Electric Company. Over the years, the segment has grown to be a real powerhouse for the conglomerate, generating several billions of dollars in sales and profits annually. Undoubtedly, this adds value to General Electric and is a bright spot for the company in this time of investor pessimism.

A major player in the healthcare space

By almost every measure, GE Healthcare is a force to be reckoned with. In a prior article, I highlighted the company’s ultrasound operations, but I have yet to piece together the segment as a whole. According to management, and shown in the image below, the segment’s largest source of revenue comes from diagnostic imaging and related services, with sales at about $8 billion per year. However, the segment’s $5 billion in sales from life sciences, followed closely by mobile diagnostics and monitoring at $4 billion, is large as well.

*Taken from General Electric

In all, this major footprint has allowed the company to amass a sizable chunk of its markets. Over 1 million imaging and mobile diagnostics devices that are under the GE Healthcare banner are estimated to be installed globally today. They perform in excess of 16 thousand scans every minute and in aggregate they have over 230 million exams of varying natures under their belts. As you can see in the image below, management has utilized its position to create partnerships with players like Amazon’s (NASDAQ:AMZN) AWS, as well as other prominent names like Microsoft (NASDAQ:MSFT) and Intel (NASDAQ:INTC).

*Taken from General Electric

What’s more, management isn’t done trying to grow GE Healthcare. Last year, the firm launched 26 products and through GE Additive and Stryker Corp (NYSE:SYK) it has more than 50 active projects in its pipeline. Another area (though management hasn’t provided any meaningful detail of it) that has been entered into is providing cloud-related services. This could be a material player for the segment in the future, but until we see evidence that management can compete in what has become a very crowded (but high-growth) space, I can’t warrant putting too much stock into that bet.

Performance has been robust but growth is slow

GE Healthcare has a history of being a great source of profit for its parent company. As you can see in the chart below, sales have slowly risen over at least the past five years, rising from $18.20 billion in 2013 to $19.17 billion in 2017. As you can see in the same graph, despite seeing a tick down from 2013 to 2014, sales of the segment have been pretty flat as a percentage of General Electric’s total industrial revenue.

*Created by Author

In recent years, international exposure has become more relevant for GE Healthcare. Today, the segment employs around 52 thousand employees spread across more than 140 countries and management has listed China as an attractive growth prospect moving forward. In fact, non-US sales for the segment totaled 55.5% of aggregate segment sales for it in 2017. This represents an increase from the 53.6% of sales that came from outside of the US just one year earlier.

As revenue has risen for the segment, so too has backlog. In 2013, this figure totaled $16.1 billion, but it has since risen to $18.1 billion. Without any doubt, this metric has benefited from a growth in orders over time. In 2017, total orders for the segment amounted to $20.4 billion. This represents an increase over the $19.2 billion seen in 2013 and 2016. According to Reuters, the imaging industry is likely to see significant growth over the next few years. In 2016, total industry sales were $29.8 billion, but that number is expected to balloon to $45.1 billion in 2022. That implies an annual sales growth for this space of around 10.9% per annum. Assuming this or anything close to this comes to fruition, backlog will grow over time for the segment.

*Created by Author

From a profitability perspective, the figures over time have been even better. After seeing segment profits decline from $3.05 billion in 2013 to $2.88 billion in 2015, we saw a nice rebound over the past two years that brought profits up to $3.45 billion for 2017. That’s the highest figure I saw on record for GE Healthcare and it accounted for 23.4% of General Electric’s Industrial segment profits, which was also a record high that I could see.

*Created by Author

Based on the numbers provided, this growth in profits, driven not only by higher sales but by cost reductions (according to management) has led to GE Healthcare’s profit margin expanding as well. Over the past five years, GE Healthcare’s segment profit margin grew from 16.7% to 18% (dipping as low at one point as 16.3%). A similar trend can be seen in the graph below, which shows that the return on assets for the segment has grown over time, rising from 10.9% to 12% today.

*Created by Author

Strong growth prospects, combined with attractive and improving margins has led to the formation of a thought in my mind. At this point in time, General Electric is stuck between a rock and a hard place. On one hand, the firm has been slammed by insurance reserves, SEC investigations, and other issues in recent months. This has resulted in shares of the business declining by around 54% from their 52-week high, effectively erasing $143 billion worth of market value from the firm.

As concerns grow that cash flow may not be enough to meet spending needs (especially now that GE Capital has cut off its distribution to its parent) and the company’s dividend to shareholders, now might be the time to consider selling off GE Healthcare. It’s difficult to tell what kind of value exists here for shareholders, but one good estimate might be derived from looking at Danaher (NYSE:DHR).

According to the management team at Danaher, 63% of the company’s revenue is split between life sciences and diagnostics operations. These are essentially the same kinds of operations that GE Healthcare engages in. Another 15% of Danaher’s revenue is attributable to the dental space, which isn’t too dissimilar to make the case that Danaher is largely a proxy for GE Healthcare.

*Taken from Danaher

Like GE Healthcare, total segment profits (I’m excluding “other” that shows up as a $170 million loss), carry with them nice margins. Using 2017’s figures, the profit margin for Danaher was 17.4%. With revenue of $18.33 billion, the company is just a bit smaller than GE Healthcare as well. When you consider that Danaher’s market cap is $69.97 billion as of the time of this writing, you come to the conclusion that the firm is trading for 3.82 times revenue and 21.9 times segment profits. Applying the same figures to GE Healthcare would imply a value on the business of between $73.02 billion and $75.51 billion. Such a sale, at the high end, would be enough to reduce General Electric’s debt from $136.21 billion to $60.70 billion if management so desired.


GE Healthcare is a great business. Despite seeing sales grow slowly, margins associated with the segment are attractive and the industry’s upside is material. Additional value would probably be realized from having the company be separated from the conglomerate since a new management team could place a more concerted effort toward growing the enterprise. The value of Danaher suggests that management could also solve a lot of its issues regarding liabilities if it were to decide part ways with the segment, perhaps even freeing up capital to reinvest toward higher-growth prospects like Aviation, Renewables, and Oil & Gas.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

Exclusive: Kaspersky Lab plans Swiss data center to combat spying allegations – documents

MOSCOW/TORONTO (Reuters) – Moscow-based Kaspersky Lab plans to open a data center in Switzerland to address Western government concerns that Russia exploits its anti-virus software to spy on customers, according to internal documents seen by Reuters.

FILE PHOTO: The logo of Russia’s Kaspersky Lab is displayed at the company’s office in Moscow, Russia October 27, 2017. REUTERS/Maxim Shemetov/File Picture

Kaspersky is setting up the center in response to actions in the United States, Britain and Lithuania last year to stop using the company’s products, according to the documents, which were confirmed by a person with direct knowledge of the matter.

The action is the latest effort by Kaspersky, a global leader in anti-virus software, to parry accusations by the U.S. government and others that the company spies on customers at the behest of Russian intelligence. The U.S. last year ordered civilian government agencies to remove the Kaspersky software from their networks.

Kaspersky has strongly rejected the accusations and filed a lawsuit against the U.S. ban.

The U.S. allegations were the “trigger” for setting up the Swiss data center, said the person familiar with Kapersky’s Switzerland plans, but not the only factor.

“The world is changing,” they said, speaking on condition of anonymity when discussing internal company business. “There is more balkanisation and protectionism.”

The person declined to provide further details on the new project, but added: “This is not just a PR stunt. We are really changing our R&D infrastructure.”

A Kaspersky spokeswoman declined to comment on the documents reviewed by Reuters.

In a statement, Kaspersky Lab said: “To further deliver on the promises of our Global Transparency Initiative, we are finalizing plans for the opening of the company’s first transparency center this year, which will be located in Europe.”

“We understand that during a time of geopolitical tension, mirrored by an increasingly complex cyber-threat landscape, people may have questions and we want to address them.”

Kaspersky Lab launched a campaign in October to dispel concerns about possible collusion with the Russian government by promising to let independent experts scrutinize its software for security vulnerabilities and “back doors” that governments could exploit to spy on its customers.

The company also said at the time that it would open “transparency centers” in Asia, Europe and the United States but did not provide details. The new Swiss facility is dubbed the Swiss Transparency Centre, according to the documents.


Work in Switzerland is due to begin “within weeks” and be completed by early 2020, said the person with knowledge of the matter.

The plans have been approved by Kaspersky Lab CEO and founder Eugene Kaspersky, who owns a majority of the privately held company, and will be announced publicly in the coming months, according to the source.

“Eugene is upset. He would rather spend the money elsewhere. But he knows this is necessary,” the person said.

It is possible the move could be derailed by the Russian security services, who might resist moving the data center outside of their jurisdiction, people familiar with Kaspersky and its relations with the government said.

Western security officials said Russia’s FSB Federal Security Service, successor to the Soviet-era KGB, exerts influence over Kaspersky management decisions, though the company has repeatedly denied those allegations.

The Swiss center will collect and analyze files identified as suspicious on the computers of tens of millions of Kaspersky customers in the United States and European Union, according to the documents reviewed by Reuters. Data from other customers will continue to be sent to a Moscow data center for review and analysis.

Files would only be transmitted from Switzerland to Moscow in cases when anomalies are detected that require manual review, the person said, adding that about 99.6 percent of such samples do not currently undergo this process.

A third party will review the center’s operations to make sure that all requests for such files are properly signed, stored and available for review by outsiders including foreign governments, the person said.

Moving operations to Switzerland will address concerns about laws that enable Russian security services to monitor data transmissions inside Russia and force companies to assist law enforcement agencies, according to the documents describing the plan.

The company will also move the department which builds its anti-virus software using code written in Moscow to Switzerland, the documents showed.

Kaspersky has received “solid support” from the Swiss government, said the source, who did not identify specific officials who have endorsed the plan.

Reporting by Jack Stubbs in Moscow and Jim Finkle in Toronto; Editing by Jonathan Weber

'Socially responsible' investors reassess Facebook ownership

NEW YORK (Reuters) – With European and U.S. lawmakers calling for investigations into reports that Facebook user data was accessed by UK based consultancy Cambridge Analytica to help President Donald Trump win the 2016 election, investors are asking even more questions about the social media company’s operations.

A Facebook sign is displayed at the Conservative Political Action Conference (CPAC) at National Harbor, Maryland, U.S., February 23, 2018. REUTERS/Joshua Roberts

An increasingly vocal base of investors who put their money where their values are had already started to sour on Facebook, one of the market’s tech darlings.

Facebook’s shares closed down nearly 7.0 percent on Monday, wiping nearly $40 billion off its market value as investors worried that potential legislation could damage the company’s advertising business.

Facebook Inc Chief Executive Mark Zuckerberg is facing calls from lawmakers to explain how the political consultancy gained improper access to data on 50 million Facebook users.

Cambridge Analytica said it strongly denies the media claims and said it deleted all Facebook data it obtained from a third-party application in 2014 after learning the information did not adhere to data protection rules.

“The lid is being opened on the black box of Facebook’s data practices, and the picture is not pretty,” said Frank Pasquale, a University of Maryland law professor who has written about Silicon Valley’s use of data.

The scrutiny presents a fresh threat to Facebook’s reputation, which is already under attack over Russia’s alleged use of Facebook tools to sway U.S. voters with divisive and false news posts before and after the 2016 election.

“We do have some concerns,” said Ron Bates, portfolio manager on the $131 million 1919 Socially Responsive Balanced Fund, a Facebook shareholder.

“The big issue of the day around customer incidents and data is something that has been discussed among ESG (environmental, social and corporate governance) investors for some time and has been a concern.”

Bates said he is encouraged by the fact that the company has acknowledged the privacy issues and is responding, and thinks it remains an appropriate investment for now.

Facebook said on Monday it had hired digital forensics firm Stroz Friedberg to carry out a comprehensive audit of Cambridge Analytica and the company had agreed to comply and give the forensics firm complete access to their servers and systems.

“What would be a deal-breaker for us would be if we saw this recurring and we saw significant risk to the consumer around privacy,” said Bates.

More than $20 trillion globally is allocated toward “responsible” investment strategies in 2016, a figure that grew by a quarter from just two years prior, according to Global Sustainable Investment Alliance, an advocacy group.

New York City Comptroller Scott Stringer, who oversees $193 billion in city pension fund assets, said in a statement to Reuters on Monday that, “as investors in Facebook, we’re closely following what are very alarming reports.”

Sustainalytics BV, a widely used research service that rates companies on their ESG performance for investors, told Reuters on Monday it is reviewing its Facebook rating, which is currently “average.”

“We’re definitely taking a look at it to see if there should be some change,” said Matthew Barg, research manager at Sustainalytics.

“Their business model is so closely tied to having access to consumer data and building off that access. You want to see that they understand that and care about that.”

ESG investors had already expressed concerns about Facebook before media reports that Cambridge Analytica harvested the private data on Facebook users to develop techniques to support Trump’s presidential campaign.

Wall Street investors, including ESG funds, have ridden the tech sector to record highs in recent months, betting on further outsized returns from stocks including Facebook, Apple Inc and Google parent Alphabet Inc.

Jennifer Sireklove, director of responsible investing at Seattle-based Parametric, a money manager with $200 billion in assets, said an increasing number of ethics-focused investors were avoiding Facebook and other social media companies, even before the most recent reports about privacy breaches.

Parametric held a call with clients on Friday to discuss concerns about investing in social media companies overall, including Google.

“More investors are starting to question whether these companies are contributing to a fair and well-informed public marketplace, or are we becoming all the more fragmented because of the ways in which these companies are operating,” she said.

Reporting by Trevor Hunnicutt and David Randall; Additional reporting by Kate Duguid in New York and Noel Randewich in San Francisco; Editing by Jennifer Ablan and Clive McKeef

China Will Block Travel for Those With Bad ‘Social Credit’

Chinese authorities will begin revoking the travel privileges of those with low scores on its so-called “social credit system,” which ranks Chinese citizens based on comprehensive monitoring of their behavior. Those who fall afoul of the system could be blocked from rail and air travel for up to a year.

China’s National Development and Reform Commission released announcements on Friday saying that the restrictions could be triggered by a broad range of offenses. According to Reuters, those include acts from spreading false information about terrorism to using expired tickets or smoking on trains.

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The Chinese government publicized its plans to create a social credit system in 2014. There is some evidence that the government’s system is entwined with China’s private credit scoring systems, such as Alibaba’s Zhima Credit, which tracks users of the AliPay smartphone payment system. It evaluates not only individuals’ financial history (which has proven problematic enough in the U.S.), but consumption patterns, education, and even social connections.

A Wired report last year found that a user with a low Zhima Credit score had to pay more to rent a bicycle, hotel room, or even an umbrella. Zhima Credit’s CEO has said, in an eerie prefiguring of the new travel restrictions, that the system “will ensure that the bad people in society don’t have a place to go, while good people can move freely and without obstruction.”

Though the policy has only now become public, Reuters says it may have come into effect earlier — in a press conference last year, an official said 6.15 million Chinese citizens had already been blocked from air travel for social misdeeds.

Electronic Arts Will Not Sell ‘Loot Crates’ in Star Wars: Battlefront II

Video game maker Electronic Arts announced Friday that it will overhaul the progression system in the game Star Wars: Battlefront II, and that all player upgrades will be earned through gameplay. EA’s plans to sell in-game upgrades for real money, in randomized packages known in the industry as ‘loot boxes’ or ‘loot crates,’ produced a massive outcry last Fall, severely damaging the game’s financial performance.

The backlash came from both gamers and, eventually, regulators and legislators. For players, upgrades purchasable for real money seemed certain to destroy the sense of healthy competition in the primarily multiplayer game. Lawmakers and activists saw an even bigger problem, comparing the purchasable loot boxes, in a game likely to have a large audience of minors, as akin to encouraging children to gamble.

EA initially responded by hastily removing the in-game loot system, but it was unclear whether it might return, and in what form. Now EA says that items impacting gameplay “will not be available for purchase” at all, instead being rewarded to players through in-game accomplishments. Other items which don’t impact gameplay, such as character costumes, will still be purchasable with real money, and those purchases will be direct rather than randomized.

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EA’s pullback may have been influenced as much by lawmakers as consumers. Authorities in Belgium, for instance, have reportedly considered classifying video games with purchasable loot crates as forms of gambling. One Hawaii state legislator began pushing for a ban on such systems. EA’s removal of gambling-like elements will likely take some steam out of those regulatory efforts, despite less egregious versions of the idea being widespread.

Gamers’ rage, though, has already had a devastating impact. Battlefront II fell dramatically short of its sales targets, selling less than half of the 1.72 million units it was expected to in its first month. Even before that dismal performance was clear, the controversy had chopped more than $3 billion from EA’s market value.

Battlefront II’s overhauled progression system will be released on March 21st.

YouTube Kids Has Been Promoting Conspiracy-Theory Videos

YouTube Kids, an app that is purportedly more well-policed than YouTube’s own website, contains videos promoting debunked and frightening conspiracy theories. Business Insider discovered that the app, whose users are presumably mostly children, has been suggesting the videos based on otherwise innocuous search terms.

For instance, searches for “moon landing” returned videos arguing that NASA had faked that event. A search for “UFO” led to videos by David Icke, a veteran conspiracist who claims that the Earth is ruled by a secret race of “lizard people.”

The potentially devastating impacts of showing such material to young children were illustrated back in 2009, when conspiracy theorists began circulating the idea that an invisible planet called “Nibiru” would collide with the Earth in 2012, and destroy it. A NASA astrobiologist reported receiving multiple inquiries from young people who were so terrified by the theories that they were contemplating suicide.

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According to Business Insider, YouTube, which is owned by Google, removed specific videos that it highlighted to them, but many similar videos remain accessible through the app. In a statement, YouTube said that “sometimes we miss the mark” on content curation.

But in fact, YouTube Kids seems to quite faithfully following the well-worn path by which YouTube itself has grown. A recent study found that the content-suggestion system on YouTube’s main site consistently promoted more extreme takes on topics users searched for, often including conspiracy theories and fabricated stories.

The Creepy Crawly Ingredient in Ikea's New Meatballs

We’ve come to associate Ikea with cheap flat-pack furniture, indestructible blue bags and very tasty meatballs. Every single day, 2 million of those meatballs are consumed across 340 Ikea stores. That’s a lot of meat.

If those meatballs were meatless, would they still be as tasty? Ikea has been exploring this very question.

Their innovation lab, Space10, reinvents products with sustainable materials and ingredients. Space10 began exploring different takes on the Ikea meatball three years ago using alternative ingredients like algae and lab-grown meat. But those meatballs were never actually produced.

Now, they’re really getting into the alternative protein game with two new real meatball prototypes. Space10 is calling it the Neatball, and one version is made with mealworms. According to Wikipedia, mealworms are “the larval form of the mealworm beetle, Tenebrio molitor, a species of darkling beetle.” Meatballs made with mashed bugs, anyone? Space10 says they like to eat them served traditional-style with mashed potatoes, gravy and lingonberry sauce.  

“The Neatball is designed to get people thinking about reducing their meat consumption, using local produce and trying alternative proteins,” Space10 wrote in a blog post. If you’re not super keen on bug balls, Space10 has you covered. Another version of the Neatball is made with root vegetables, including carrots, parsnips and beets.

If both sound equally unappetizing, no need to run out to your nearest Ikea and stock up on frozen real meat meatballs. The Neatball won’t be appearing in stores anytime soon. Space10 is Ikea’s test kitchen, which intends to draw attention to food products that could be feasible — but aren’t ready for the prime time mass market quite yet.

With the unveiling of the Neatball, Space10 introduced a few other fast-food concepts featuring unique alternative ingredients. There’s a Dogless Hotdog with a spirulina bun; the Bug Burger with  beetroot, parsnip, potatoes and mealworms; and salad constructed entirely from hydroponic-grown microgreens, sprouts and herbs.

This 1 Job Interview Tip Makes You Sound More Well-Spoken

Interviews aren’t easy. Trying to make a good impression in a condensed period of time while under pressure makes us all nervous. That’s why preparing for interviews is so vital. Now, more than ever, hiring managers have very high expectations of applicants.

Smart people talk in simple terms.

Studies show people who try to sound important and smart by using long, complex words actually sound less educated and are less respected. The more basic and simply you can speak, the more believable you are. This makes sense. If you have to over-complicate things with a long-winded answer, it can give the impression you are:

None of these are things we wish to convey in a job interview. The solution is to master a three-step process for answering interview questions.

The “experience + learn = grow” model.

Most hiring managers use behavioral questions in interviews. These types of questions require a more-than-one-word answer. The key is to answer with just enough detail, but without going over-the-top. At Work It Daily, we teach job seekers the following format for answering any question concisely.

Experience — Summarize a situation from your past that validates you have the experience they’re looking for.

Learn — Share what the experience taught you.

Grow — Emphasize how you plan to use what you’ve learned to be more valuable to the employer.

For example, if a hiring manager asks, “Tell me about a time when you had to deal with a difficult customer,” you might answer:

“Once, an irate customer called our toll-free line and I answered it. The person had received damaged goods in the mail and was furious. I let him vent his frustration without interruption. When he finally finished, I thanked him for his honesty and apologized for the inconvenience. It was amazing how much his attitude changed when I didn’t try to make excuses. I asked him what he thought would be the best course of action and he suggested having a replacement sent overnight at our expense. I agreed and set it up. By the time we were done, he was complimenting the company on what great customer service we had.”

“What I learned that day is angry customers want to be heard, and focusing on the solution instead of what went wrong is the key to success.”

“Now, I’d like to use this knowledge, along with some of the other valuable customer-service lessons I gained at my last job to help exceed your customers’ expectations as well.”

See how easy it is to concisely convey your expertise when you follow this format?

P.S. — Asking questions is as important as answering them.

The best interviews are a two-way dialog. You should leave feeling like you had a meaningful conversation with the hiring manager. To do this, job seekers must also prepare questions to ask in the interview. Knowing how to sound well-spoken is only half of the equation. You also need to know how to appear engaged and excited about the role. The questions you ask can help you connect more deeply with the hiring manager and leave a stronger impression.

EU to propose 3 percent digital tax on turnover of large firms: draft

BRUSSELS (Reuters) – Large companies with significant digital revenues in the European Union could face a 3 percent tax on their turnover under a draft proposal from the European Commission seen by Reuters.

The proposal, expected to be adopted next week and still subject to changes, has been modified from an earlier draft which put the planned corporate rate between 1 and 5 percent.

The tax, if backed by EU states and lawmakers, would only apply to large firms with annual worldwide revenues above 750 million euros ($924 million) and annual “taxable” revenues above 50 million euros in the EU.

The tax is presented in the draft as a temporary measure that would only be implemented if no deal is found on a more comprehensive solution which would tax the digital profits of companies in the countries where they are made, rather than where the firms are headquartered as is the case now.

($1 = 0.8117 euros)

Reporting by Francesco Guarascio; editing by Foo Yun Chee

America Movil to roll out 4.5G in 76 cities by end-2018

MEXICO CITY (Reuters) – America Movil, Mexico’s largest telecommunications firm, will roll out a faster 4.5G network in 76 cities across the country by the end of 2018, the company’s chief executive Daniel Hajj said on Wednesday.

The logo of America Movil is pictured on the wall of a reception area in the company’s corporate offices in Mexico City, Mexico, May 18, 2017. REUTERS/Edgard Garrido

Reporting by Julia Love and Sheky Espejo

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