General Electric eyes a future as an aerospace and defense company, shedding its diversified conglomerate past. Is GE stock a buy after breaking out to its highest level in six years?
GE News
On Nov. 14, General Electric announced the boards of directors for the upcoming GE Vernova and GE Aerospace companies.
A day earlier, Dubai carrier Emirates announced a $52 billion order for 95 Boeing 777 aircraft, along with an order for 202 GE9X engines and spares to power the 777 fleet. GE Aerospace calls the GE9X its most advanced, efficient and quiet jet engine yet. The engine has seen some teething issues.
On Oct. 24, the industrial giant delivered another quarterly beat-and-raise report, with gains or further improvements across its aerospace, gas power and renewable energy segments.
The company plans to spin off its power and renewables business, as GE Vernova, in the second quarter of 2024. That will allow the "new GE," GE Aerospace, to emerge as a stand-alone company.
GE's health care spinoff, GE HealthCare Technologies, debuted on the Nasdaq in January. General Electric had announced a three-way breakup — into independent energy, 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 wars in the Middle East and Europe.
GE Stock's Huge Rally
Shares of General Electric dipped a fraction Wednesday, still within buy range, which goes to 123.86. GE stock had cleared a 117.96 flat-base buy point on Nov. 16, according to MarketSmith. It earlier topped a trendline entry.
GE stock now sits at its highest level since November 2017, when troubles led General Electric to signal a breakup. In January 2018, GE said it was weighing a breakup.
The relative strength line for GE stock is trending higher but below the consolidation peak. The RS line, the blue line in IBD charts, tracks a stock's progress vs. the S&P 500.
Year to date, GE stock has soared about 83%. It has rebounded in November with stocks at large from the market pullback since August.
The industrial giant earns an IBD Composite Rating of 91 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 95, meaning it has outperformed 95% of all stocks in IBD's database over the past year.
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GE Earnings
On key earnings and sales metrics, GE stock earns an EPS Rating of 77 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 Oct. 24, GE beat estimates for the third quarter and raised financial targets, driven by strength in its aerospace business.
In Q3, GE's renewable energy unit also cut losses and gas power saw profits soar.
Free cash flow (FCF) is a closely watched metric. In 2023, GE management now expects FCF to reach as much as $5.1 billion, up from its previous view for $4.6 billion.
Out of 18 analysts on Wall Street, 11 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. 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.
The aerospace segment continues to benefit from a recovery in commercial air travel, as well as growing defense orders.
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Rivals To General Electric
Rivals to General Electric include Raytheon Technologies, Siemens and Honeywell.
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 and Roper Technologies.
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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. The upcoming GE Aerospace continues to grow jet-engine orders.
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 and the Israel-Hamas war add to business uncertainty.
For an industrial giant like General Electric, these are challenging headwinds.
From a technical view, GE shares are in buy range from their latest breakout. It would be a positive sign if the RS line for GE stock were to make a new high.
Bottom line: GE stock is a buy.
Over the long term, buying an index fund, such as SPDR S&P 500, 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.
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