General Electric (GE) will emerge as an aviation and defense pure play in 2024 after completing its big breakup. Is GE stock a buy after soaring to 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. That will allow the “new GE,” GE Aerospace, the company’s jet-engine business, to emerge as an aviation and defense company.
On April 25, GE slightly hiked its full-year guidance after first-quarter earnings crushed estimates. Aviation revenue jumped 35%, driven by demand for jet-engine parts and services.
The aerospace unit is benefiting from a recovery in commercial air travel.
New health care spinoff, GE HealthCare Technologies (GEHC), also made its first report. GE had announced its big three-way breakup in late 2021.
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
On March 31, GE stock cleared a 95.04 buy point from a follow-on, three-weeks-tight pattern. The buy zone goes to 99.79. Shares have intermittently nudged above 100 since the breakout, but were hovering near 98, still within 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 to the 50-day/10-week line or a new base might offer a safer buying opportunity.
Shares are benefiting from a strong aerospace outlook.
Year to date, GE stock has soared 50.4% vs. 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 rose to highs with the stock, but has pulled back a bit. A rising RS line means that 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. 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 March, 1,847 funds owned shares.
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GE Earnings
On key earnings and sales metrics, GE stock earns an EPS Rating of 72 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.
Analysts on Wall Street expect GE earnings to decline 22% per share in 2023, before rebounding 95% in 2024, FactSet shows.
Free cash flow is closely watched as a sign of the health of GE’s operations. It plunged in 2020, bounced back in 2021, and fell in 2022, FactSet data shows.
Out of 21 analysts on Wall Street, 15 rate GE stock a buy. Six 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). 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.
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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?
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 is still within buy range from its latest breakout on March 31. The stock has rocketed in 2023 as investors await the emergence of GE Aerospace.
Bottom line: GE stock is 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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