General Electric (NYSE:GE) has displayed remarkable performance this year, with its stock soaring by over 73% in 2023. With a market capitalization of $122 billion, GE’s stock has experienced a substantial surge of more than 88% in the past year. However, it’s worth noting that these gains, impressive as they are, still fall short of the company’s all-time highs achieved in 2000, when its valuation exceeded $600 billion.

Although the recent surge is evident, the long-term performance of this large-cap stock has lagged considerably behind broader market indices. After factoring in dividends, GE’s stock has yielded a return of 28% since August 2003. In contrast, the S&P 500 Index ($SPX) has delivered a remarkable 571% return to its shareholders over the past two decades.

In light of its recent outperformance, it’s essential to evaluate whether purchasing General Electric stock at its current valuation is a prudent choice.

General Electric Stock: Buy, Sell, or Hold? 

General Electric stands as a diversified industrial heavyweight, engaged in sectors ranging from commercial and military aircraft engines and systems to renewable energy generation equipment, grid solutions, as well as gas, steam, and nuclear power generation technology. The company encompasses various subsidiaries, including Aerospace, Healthcare, Capital, and Renewable Energy. In a manner reminiscent of the recent GE Healthcare (NASDAQ:GEHC) spin-off, the company plans to spin off its renewable energy and power business in 2024, which will adopt the name GE Vernova.

The second quarter of 2023 marked another period of robust growth for General Electric, characterized by double-digit increases in orders, revenue, and operating profit. These gains were propelled by strong service demand and a robust market across multiple verticals. Notably, GE’s Aerospace business showcased particular strength, and GE Vernova achieved record orders and improved profit margins within the renewable energy segment.

Specifically, the revenue for the quarter surged by 19%, reaching $15.9 billion, while adjusted earnings nearly doubled to $0.68 per share, a significant increase from the $0.36 per share reported in the corresponding period of the previous year. Following the solid Q2 results, the company’s management revised its full-year projections for sales, earnings, and cash flows upwards. In the first two quarters of 2023, GE’s earnings have already surpassed its full-year 2022 results, where it reported earnings of $2.35 per share.

Navigating the Path Forward for GE Stock in 2023 

The Aerospace business faced challenges stemming from supply chain disruptions during the COVID-19 pandemic. However, General Electric has since overcome these obstacles and anticipates delivering 1,700 LEAP engines to industry giants Airbus (AIR.FP) and Boeing (NYSE:BA), with production scaling up at an accelerated pace.

During an earnings call, GE CEO Larry Culp emphasized the progress in the Defense sector, citing significant growth and more than doubled orders. Engine output also experienced a notable increase, with a year-over-year rise exceeding 70%.

Forecasts indicate that GE Aerospace is expected to contribute between $5.6 billion and $5.9 billion to operating profits in 2023, surpassing prior guidance of $5.3 billion to $5.7 billion.

In contrast, GE’s Power segment witnessed a 1% decline in sales. Nonetheless, due to substantial growth in the higher-margin services business, profits increased by 18% year over year. Culp highlighted that renewable sales are projected to achieve high-single-digit growth this year, surpassing the previously estimated mid-single-digit growth.

Target Price for General Electric Stock 

Market analysts monitoring GE stock anticipate the company to conclude 2023 with a free cash flow of $4.3 billion, with an even more impressive growth forecast of 45% to $6.3 billion in 2024. Consequently, GE stock is presently valued at 19.8 times its projected 2024 free cash flow, a valuation that seems reasonable should the company’s business turnaround prove successful.

Among the pool of 15 analysts covering GE stock, eight advocate a “strong buy,” two recommend a “moderate buy,” and five suggest a “hold.” The average target price for GE stock is $123.07, representing a modest 8% increase from the current trading price.

While the impending spin-off of GE Vernova might instigate investor unease, the persistent demand for clean energy solutions over the coming three decades remains robust. Additionally, the potential for aircraft production figures to reach all-time highs could substantially bolster GE’s Aerospace business. These trends are also poised to support ongoing growth within General Electric’s high-margin services division, indicating the presence of further upside potential.

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