GE Stock (NYSE:GE)
General Electric (NYSE:GE) pleasantly surprised investors at its 2023 investor conference on Thursday by announcing that the conglomerate’s power sector is well-positioned to achieve high levels of profitability over the long run.
GE Vernova, a company whose power business comprises grid, gas, and wind power assets, has been having trouble for a very long time. In comparison to the previous year, Vernova’s operational profit margins were around -3%. GE Electric (NYSE:GE) reaffirmed its financial guidance for the company as a whole as well as its segments on Thursday. This guidance included the company’s projection that Vernova will have a full-year operating loss that falls somewhere between $600 million and $200 million.
At the beginning of 2024, GE intends to separate GE Vernova into its own company.
Investors, at least up to this point, appear to be pleased with what they are hearing. During trading on Thursday morning, GE stock experienced a gain of 7.5%. Both the S&P 500 (SPX –1.85%) and the Dow Jones Industrial Average (DJIA –1.66%) added approximately 0.2% to their respective values.
GE stock had almost a 33 percent rise going into Thursday’s trading session. Around 31% growth has been seen in the value of GE HealthCare Technologies (GEHC) shares since the company was spun off at the beginning of the year.
Investors have had a bumpy ride ever since the stock of General Electric set a record high in 2020, so they should be relieved to learn that it has been performing well recently. Since becoming CEO of GE in late 2018, Larry Culp has restructured the business’s balance sheet and developed a strategy to divide the company into three separate entities.
Over the past decade, GE’s stock performance has been somewhat volatile. In the years leading up to the 2008 financial crisis, GE stock was trading at around $40 per share. However, in the wake of the crisis, the stock plummeted to under $10 per share by early 2009.
From 2009 to 2016, GE’s stock made a steady recovery, with the share price reaching over $30 by mid-2016. However, the stock began to decline again in late 2016 and early 2017, and by the end of 2018, it had fallen to around $7 per share.
Since then, GE’s stock has shown some signs of improvement. In 2019, the stock climbed to around $12 per share, and in 2020, it reached as high as $13 per share. However, the COVID-19 pandemic caused a decline in the stock price, which fell to around $6 per share in early 2021.
As of March 2023, GE’s stock price has recovered somewhat and is currently trading at around $12 per share. However, it is important to note that the stock price can be influenced by a variety of factors, including global economic conditions, industry trends, and company performance, among others.
Thursday marked the beginning of this year’s investor meeting, which was held in Cincinnati, Ohio, the location of GE Aerospace’s headquarters. GE provided a long-term view for both its power and aerospace sectors, in addition to reiterating its projections for its financial performance through the year 2023. Here are some of the most important updates:
GE Vernova
GE has stated that it anticipates “mid- to high-single-digit” growth in Vernova’s revenues and that the company’s operating profit margins will eventually reach “high-single digits,” which may be 8% or 9%.
The level of profitability is unexpected, particularly in light of the fact that the operating profit margins were negative the previous year. The primary issue that GE had in 2022 was with its wind power division, which incurred losses of almost $2.2 billion. Its power-generation business, which uses technology based on natural gas turbines, brought in approximately $1.2 billion in revenue for the company in 2017.
In a study that was released on Thursday, an analyst from Wolfe Research named Nigel Coe noted that these targets “represent a clear improvement from today’s breakeven-ish performance.” “Cash production targets have improved sequentially, and management has referenced 2024 as a critical inflection moment for free cash flow.” He has a Buy rating on the shares of GE and a price target of $90 for the stock.
In order for Vernova to make progress, the plan calls on the company to maintain its emphasis on cost-cutting. In the future years, GE’s gas power division will see an increase in the number of services it offers (services typically have higher profit margins than equipment sales). In addition, the company is making efforts to streamline its wind business by cutting down on the number of goods and components it sells in order to make production less complicated.
Also, the company will benefit from the Inflation Reduction Act. According to GE, it is anticipated that the United States would install between 150 and 200-gigawatt hours of capacity for onshore wind generation in the next ten years. This is an increase from the roughly 80 gigawatts that were built during the course of the preceding decade.
GE Aerospace
The company also stated that it anticipates revenue growth in the “mid- to high-single-digit” range for its more profitable aerospace industry, and that profit margins will rise over the course of the long term.
The expansion of margins is due, in part, to the expansion of the business. GE forecasts increased spending on both commercial and military aviation. The annual output of aircraft is anticipated to expand at a rate of approximately 15% per year on average over the next three years.
The lowering of costs is another source of expansion. The Boeing (NYSE:BA) 737 MAX and the Airbus (EPA:AIR) A320 series of jets are both powered by GE’s new LEAP engines, and on Thursday, Mohamed Ali, the vice president of engineering at GE, meticulously explained the company’s ambitions to increase the dependability and durability of these engines. LEAP engines have experienced certain problems, resulting in the need to repair parts earlier than was originally anticipated.
The operating profit margins of GE Aerospace came in at approximately 18.3% in 2022, which is significantly lower than the approximately 21% that they had before the pandemic.
2023 Financial Guidance
On Thursday, GE restated its projections for the company’s finances until the year 2023. The company is maintaining its forecast that it will generate free cash flow in the range of $3.4 billion to $4.2 billion and profits per share in the range of $1.60 to $2. Operational profit for GE Aerospace is anticipated to fall somewhere in the range of $5.3 billion to $5.7 billion.
There is no deviation at all from the information that was provided in late January. At the moment, Wall Street anticipates that the earnings per share will be $1.94 in 2023 and that the free cash flow for the entire corporation will amount to $3.8 billion.
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