Author: APARNA NARAYANAN
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General Electric (GE) will emerge as an aviation and defense pure play in early 2024 after completing its big breakup. Is GE stock a buy after its huge rally?
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GE News
The company remains on track 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 an aviation and defense pure play.
At an investor event March 9, General Electric gave upbeat long-term outlooks for both GE Aerospace and GE Vernova. That pushed GE stock to a 58-month high March 9.
GE Aerospace is benefiting from the recovery in commercial air travel.
In early January, General Electric spun off its health care business, which now trades as GE HealthCare Technologies (GEHC). The storied conglomerate had announced its big three-way breakup in late 2021.
In Q4, GE earnings jumped 73%. Strength in aviation and power was offset by weakness in GE’s renewable energy business.
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
Shares of General Electric have jumped in 2023 and since the March 9 event. GE stock topped an 84.13 handle buy point in mid February, the MarketSmith chart shows. Now shares trade near 91.59, meaning they are not in the proper 5% buy range.
The relative strength line for GE stock rallied in the past year, but has flattened out in March. A rising RS line means that a stock is outperforming the S&P 500. It is the blue line in the chart shown.
Year to date, GE stock is up 40% vs. a 3.5% gain for the S&P 500.
The industrial giant earns an IBD Composite Rating of 79 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 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. As of December, 1,789 funds owned shares.
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GE Earnings
On key earnings and sales metrics, GE stock earns an EPS Rating of 46 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.
GE earnings for the fourth quarter were led by its aviation business. Its onshore wind business continued to be a drag on earnings.
Analysts on Wall Street expect GE earnings to decline 25% per share in 2023, before rebounding 94% in 2024.
Free cash flow is closely watched as a sign of the health of GE’s operations. It plunged in 2020, rebounded in 2021, and fell in 2022, FactSet shows.
Out of 21 analysts on Wall Street, 14 rate GE stock a buy. Seven have a hold and no one has a sell.
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GE Aviation
Aviation — sometimes called GE’s “crown jewel” — makes jet engines and aviation systems for plane makers including Boeing (BA). GE Aviation 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 Aviation, many of those headwinds are easing.
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Rivals To General Electric
Rivals to General Electric include Raytheon Technologies (RTX) and Siemens‘ (SIEGY) Energy unit.
Raytheon and Rolls-Royce of Britain are major jet-engine rivals. Siemens Energy competes with GE in power.
Other industrial peers include 3M (MMM), Honeywell (HON) and Roper Technologies (ROP).
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Is GE Stock A Buy Now?
General Electric’s poised for a huge transformation, shedding its diversified past to emerge as an aviation-focused company.
However, recession fears are growing, as rate hikes to control inflation weigh on global economies. The Russia-Ukraine war adds to business uncertainty.
For a cyclical industrial giant like General Electric, these are challenging headwinds.
From a technical perspective, GE stock notched a multi-year high on March 9 after management gave a strong aerospace outlook. But shares are not within buy range.
Even if it were in a buy range, the market’s “In Correction” status indicates an unpredictable market with clear factors weighing against it. It strongly discourages investors from making new purchases until a confirmed uptrend gets underway.
Bottom line: GE stock is not 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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The post GE Stock Keeps Rising After Strong Aerospace Outlook — Is It A Buy? appeared first on Investor’s Business Daily.