General Electric (GE) will emerge as a pure aviation and defense game in 2024 after completing its big break. Is GE stock a buy after hitting multi-year highs?
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GE News
The company remains on track to spin off its energy business as GE Vernova in early 2024. This will allow the “new GE”, GE Aerospace, the company’s jet engine business, to emerge as a as an aviation and defense company.
On April 25, GE raised its full-year guidance 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. GE had announced its big three-way break at the end of 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 buy zone moves to 99.79. Shares have intermittently topped 100 since the breakout, but were hovering around 98, still in the buy range, on May 12.
GE shares remain above a rising 50-day moving average. But they are testing the 21-day exponential moving average.
A pullback towards the 50-day/10-week line or a new base could provide a safer buying opportunity.
Equities are benefiting from the good outlook for aerospace.
Year-to-date, GE stock has climbed 50.4% versus a 7.3% 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 the title, but fell back slightly. 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 89 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, 1,847 funds held shares.
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GE revenue
On key earnings and sales metrics, GE stock earns an EPS rating of 72 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.
Wall Street analysts expect GE’s earnings to decline 22% per share in 2023, before rebounding 95% in 2024, according to FactSet.
Free cash flow 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.
Of 21 Wall Street analysts, 15 rate GE stock as a buy. Six have a hold and no one has a sale.
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GE Aerospace
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) and Siemens‘ (SIEGY) Energy unit.
Raytheon and Britain’s Rolls-Royce are the main jet engine rivals. Siemens Energy competes with GE in electricity.
Other industry peers include 3M (MMM), Honeywell (HON) 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 Russian-Ukrainian war adds to business uncertainty.
For a cyclical industrial giant like General Electric, these are tough headwinds.
From a technical standpoint, GE stock is still in the buy range since its last breakout on March 31. The stock has exploded in 2023 as investors await the emergence of GE Aerospace.
Conclusion: GE shares are 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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