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?
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GE News
On Jan. 23, General Electric beat earnings and revenue estimates for the fourth quarter of 2023. But the industrial giant gave disappointing 2024 guidance.
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.
GE Stock In Buy Zone
Shares of General Electric recently cleared a 132.50 buy point from a three-weeks-tight pattern. The buying opportunity follows a successful November breakout past 117.96, according to MarketSmith. GE stock continues to act well, holding above both short- and long-term moving averages.
In fact, GE stock sits at its highest level since the company in November 2017 signaled a breakup amid financial troubles.
The relative strength line for GE stock continues to rise, a sign of outperformance. 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 about 8%. For 2023, GE outperformed most other stocks, clocking a 95.2% gain.
The industrial giant earns an IBD Composite Rating of 93 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 92, meaning it has outperformed 92% 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 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.
But despite the Q4 earnings beat, the company’s 2024 guidance, issued on Jan. 23, 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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GE Aerospace
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.
But lingering problems on Boeing’s flagship 737 Max planes, tied to another supplier, are being watched. And 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
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 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 shares offer investors a follow-up buying opportunity, meaning a chance to add shares after a massive price run.
Bottom line: GE stock is 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 GE stock. However, shares have outperformed since mid-2022 as General Electric revived growth and began its transformation into a 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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