General Electric (GE) eyes a future as an aerospace and defense company, shedding its diversified conglomerate past. Is GE stock a buy after its latest breakout?
On Jan. 23, General Electric beat earnings and revenue estimates for the fourth quarter of 2023. Its 2024 guidance disappointed some investors.
GE plans to spin off its power and renewable energy business, as GE Vernova, in early April. The “new GE,” GE Aerospace, will emerge as a stand-alone company around the same time.
Vernova will trade under the ticker symbol GEV, the company has said. GE Aerospace will continue to use the GE stock ticker.
GE’s health care spinoff, GE HealthCare Technologies (GEHC), debuted last January. General Electric had announced a three-way breakup — into independent aviation, health care and energy companies — in 2021. Prior to that, GE shed a series of assets, from lighting to locomotives.
Shares of General Electric recently cleared a 132.50 buy point off a three-weeks-tight pattern, They are now slightly extended, meaning shares are not within buy range. The fresh buying opportunity followed a successful November breakout from a flat base, according to MarketSmith pattern recognition.
GE stock struck a new high on Feb. 8, above all the short- and long-term moving averages. In fact, GE stock sits at its highest level since November 2017, when the company signaled a breakup amid financial troubles.
The relative strength line for GE stock continues to rise, a positive sign. 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 risen 9%. For 2023, GE clocked a 95% gain, its best year on record going back to 1972, according to Dow Jones market data.
The industrial giant earns an IBD Composite Rating of 92 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 91, meaning it has outperformed 91% of all stocks in IBD’s database over the past year.
On key earnings and sales metrics, GE stock earns an EPS Rating of 74 out of a best-possible 99, and an SMR Rating of B, 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 2023, GE earnings surged 264% as revenue grew 17%, capped off by a solid fourth quarter, according to the company’s 2023 Annual Report. Its aerospace business drove results while renewable energy and power both improved performance.
While Q4 earnings beat, the company’s 2024 guidance fell short of expectations.
Free cash flow (FCF) is a closely watched metric. In 2022, General Electric’s FCF reached $5.2 billion, up by $2.1 billion.
Out of 19 analysts on Wall Street, 12 rate GE stock a buy. Seven have a hold and no one has a sell.
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The aerospace segment — sometimes called GE’s “crown jewel” — makes jet engines and aviation systems for plane makers including Boeing (BA), as well as the military. 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.
It is benefiting from the post-pandemic recovery in commercial air travel, as well as growing defense orders.
Further to that, the Boeing 737 Max crisis is forcing airlines to fly older planes for longer, meaning more demand for GE Aerospace’s services business. But companies are broadly grappling with macroeconomic and geopolitical risks, including wars in the Middle East and Europe.
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Rivals To General Electric
Raytheon and Rolls-Royce of Britain are major jet-engine rivals. GE competes with Siemens Energy in power and with Honeywell in aviation systems.
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Is GE Stock A Buy?
General Electric is poised for a huge transformation, from a storied industrial conglomerate to an aviation pure-play company. The upcoming GE Aerospace continues to grow jet-engine orders.
However, the aviation business is highly cyclical. Globally, inflation and risk of recession are weighing on many economies. The Ukraine and Gaza wars add to business uncertainty.
For an industrial giant like General Electric, these are challenging headwinds.
From a technical view, GE is just out of range from the latest, follow-on buying opportunity. Shares continue to act well following a massive price run.
Bottom line: GE stock is not a buy right now.
Over the long term, buying an index fund, such as SPDR S&P 500 (SPY), would have delivered safer, higher returns than buying GE stock. However, shares have outperformed since mid-2022 as General Electric revived growth and began to transform into an aviation-focused company.
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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