General Electric (GE) eyes a future as an aviation and defense pure play, shedding its diversified conglomerate past. Is GE stock a buy after soaring to multi-year highs, with earnings due?
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GE News
The industrial giant plans to spin off its energy business as GE Vernova in early 2024. That will allow the “new GE,” GE Aerospace, the company’s jet-engine business, to emerge as a stand-alone company.
The aerospace unit is benefiting from a recovery in commercial air travel.
Its health care spinoff, GE HealthCare Technologies (GEHC), debuted on the Nasdaq in January. General Electric had announced a three-way breakup — into independent power, health care and aviation companies — in 2021. Prior to that, it shed a series of assets, from lighting to locomotives.
Industrial companies are grappling with supply-chain issues and macro uncertainties. Other headwinds include the rapid rise in inflation and the Russia-Ukraine war.
GE Stock’s Huge Rally
GE stock cleared a 108.90 buy point at the end of June . The entry from a three-weeks-tight pattern offered a place for existing investors to add a few more shares. The stock is within buy range, which goes to 114.35.
It remains above the 21-day exponential moving average as well as longer-term averages. Shares have risen every month in 2023 so far and sit at a five-year-plus high.
Year to date, GE stock has soared 70%, including an 11.5% jump in the past three months. It has more than doubled from its Sept. 30, 2022 low of 48.29.
The relative strength line has flattened out after a strong rally. A rising RS line means that 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 88 out of 99, according to the IBD Stock Checkup tool. The rating combines key technical and fundamental metrics in a single score.
General Electric owns an RS Rating of 96, meaning it has outperformed 96% of all stocks in IBD’s database over the past year.
GE remains a popular stock on Wall Street. As of June, 1,922 funds owned shares.
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GE Earnings
On key earnings and sales metrics, GE stock earns an EPS Rating of 73 out of a best-possible 99, 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 earnings surged 53% as revenue grew 3%, according to the company’s 2022 Annual Report. On April 25, GE’s first-quarter earnings crushed estimates.
After the GE HealthCare Technologies spinoff, GE’s two remaining businesses focus on aerospace and energy, including renewable energy.
For aerospace and energy combined, GE management projects earnings will more than double to $1.70-$2 per share for full-year 2023, up from 77 cents in 2022.
Free cash flow (FCF) is a closely watched metric. In 2023, GE management expects FCF to grow as much as 35% to $4.2 billion at the combined aerospace and energy businesses. That would be up from $3.1 billion in 2022.
GE earnings for the second quarter are due on July 25.
Out of 20 analysts on Wall Street, 13 rate GE stock a buy. Seven have a hold and no one has a sell.
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GE Aerospace
The aerospace segment — sometimes called GE’s “crown jewel” — makes jet engines and aviation systems for plane makers including Boeing (BA). GE Aerospace also runs a lucrative aftermarket business for engine repair and maintenance.
During the pandemic, travel restrictions to halt the spread of Covid-19 negatively affected aircraft deliveries and orders.
Aerospace suppliers also struggled to deliver parts and equipment on time, due to pandemic-fueled shortages of semiconductor chips and plastics. Costs of aluminum and steel also rose.
For GE Aerospace, many of those headwinds have eased.
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Rivals To General Electric
Rivals to General Electric include Raytheon Technologies (RTX), Siemens (SIEGY) and Honeywell (HON).
Raytheon and Rolls-Royce of Britain are major jet-engine rivals. GE competes with Siemens Energy in power and with Honeywell in aviation systems.
Other industrial peers include 3M (MMM) and Roper Technologies (ROP).
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Is GE Stock A Buy?
General Electric’s poised for a huge transformation, shedding its diversified past to make a big bet on an aviation-focused future.
However, the jet-engine business is highly cyclical. Globally, recession fears linger, while rate hikes to control inflation are weighing on many economies. The Russia-Ukraine war adds to business uncertainty.
For an industrial giant like General Electric, these are challenging headwinds.
From a technical view, GE shares have successfully rebounded from a test of the 10-week line.
The stock is currently in range from a 108.90 follow-on entry. It has ripped higher in 2023 ahead of the GE Aerospace debut.
Bottom line: GE stock is a buy.
Over the long term, buying an index fund, such as SPDR S&P 500 (SPY), would have delivered safer, higher returns than GE stock. 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 IBD Stock Lists and other IBD content.
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