General Electric (GE) is poised to emerge as a pure aviation and defense player, shedding its diverse past. Is GE stock a buy after hitting multi-year highs amid huge profit hopes?
The company says it remains on track to spin off its energy business as GE Vernova in early 2024. This will allow “new GE”, GE Aerospace, the company’s jet engine business, to to emerge as an aviation and defense company.
On April 25, GE raised its full-year forecast slightly after first-quarter earnings smashed estimates. Aviation revenues jumped 35%, driven by demand for jet engine parts and services.
The aerospace unit is benefiting from a recovery in commercial air travel.
New healthcare spin-off, GE HealthCare Technologies (GEHC), also made its first report. Diversified conglomerate General Electric had announced a split into three parts – into independent power, healthcare and aviation companies – in 2021.
Industrial companies are grappling with supply chain issues and macroeconomic uncertainties. Other headwinds include rapidly rising inflation and the Russian-Ukrainian war.
The Great GE Stock Rally
On March 31, GE stock crossed a buy point of 95.04 from a tight three-week trailing pattern. The shares are now extended, meaning they are out of the buy range, which is at 99.79. They fell a fraction to 102.21 on May 30.
After a strong rally over the past year, fueled by an improving outlook for aviation, GE shares are at a more than five-year high. They found recent support at the 21-day exponential moving average and remain above a rising 50-day moving average.
A pullback towards the 50-day/10-week line or a new base could provide a safer buying opportunity.
Year-to-date, GE stock is up nearly 57% versus a 10% gain for the S&P 500. It has more than doubled from its Sept. 30, 2022 low of 48.29.
The relative strength line peaked with GE stocks, but flattened out a bit. A rising RS line means a stock is outperforming the S&P 500. It is the blue line in the chart shown.
The industrial giant earns an IBD composite rating of 90 out of 99, according to the IBD Stock Checkup tool. Scoring combines key technical and fundamental metrics into a single score.
General Electric holds an RS rating of 97, meaning it has outperformed 97% of all stocks in IBD’s database over the past year.
GE remains a popular stock on Wall Street. In March, 1,858 funds held shares.
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On key earnings and sales metrics, GE stock earns an EPS rating of 73 out of the best 99 possible, and an SMR rating of C, on a scale of A (best) to E (worst). The EPS rating compares a company’s earnings per share growth to all other companies. The SMR rating reflects sales growth, profit margins and return on equity.
In 2022. GE’s profits jumped 53% as revenue rose 3%, according to the company’s 2022 annual report.
General Electric spun off its healthcare business as GE HealthCare Technologies on Jan. 3. GE’s two remaining businesses include aerospace and energy, including renewables.
For aerospace and energy combined, GE management expects earnings to more than double to $1.70 to $2 per share for the full year 2023, from 77 cents in 2022. The company noted d penny down from its end-April EPS forecast. It continued to guide revenue growth into the “high numbers” for both companies from a 6% gain last year.
Free cash flow (FCF) is being watched closely as a sign of the health of GE’s operations. It dipped in 2020, rebounded in 2021 and fell in 2022, according to FactSet data. In 2023, GE management expects FCF to grow 35% to $4.2 billion in the combined aerospace and energy businesses, up from $3.1 billion in 2022 .
Of 21 Wall Street analysts, 14 rate GE stock as a buy. Seven have a hold and no one has a sale.
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The aerospace segment — sometimes called GE’s “crown jewel” — manufactures jet engines and aviation systems for aircraft manufacturers, including Boeing (BA). GE Aerospace also runs a lucrative aftermarket business for engine repair and overhaul.
During the pandemic, travel restrictions aimed at stopping the spread of Covid-19 had a negative impact on aircraft deliveries and orders.
Aerospace suppliers have also struggled to deliver parts and equipment on time, due to pandemic-fueled shortages of semiconductor chips and plastics. Aluminum and steel costs have also increased.
For GE Aerospace, many of these headwinds have eased.
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General Electric rivals
General Electric’s rivals include Raytheon Technologies (RTX), Siemens (SIEGY) and Honeywell (HON).
Raytheon and Britain’s Rolls-Royce are the main jet engine rivals. GE competes with Siemens Energy in electricity and Honeywell in aircraft systems.
Other industry peers include 3M (MMM) and Roper Technologies (ROP).
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Is GE Stock a Buy?
General Electric is about to undergo a huge transformation, abandoning its diverse past to emerge as an aviation-focused company.
However, recession fears are growing as rate hikes to control inflation weigh on global economies. The protracted war between Russia and Ukraine adds to business uncertainty.
For a cyclical industrial giant like General Electric, these are tough headwinds.
From a technical standpoint, GE stock has staged a huge rally but is not currently in a suitable buy zone. The stock continues to do well in 2023 as investors await the arrival of a new aerospace-focused GE next year.
Bottom line: GE stock is not a buy.
Over the long term, buying an index fund, such as the SPDR S&P 500 (SPY), would have provided safer and higher returns than GE stocks. If you want to invest in a large-cap stock, IBD offers several strong ideas here.
To find the best stocks to buy or watch, check out the IBD Stock Lists and other IBD content.
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