The shares of General Electric (NYSE:GE) have demonstrated an impressive performance this year, outpacing the broader market with a staggering 73% surge in 2023. With a market capitalization now standing at $122 billion, GE’s stock has soared by over 88% within the past year. Despite this impressive rally, the stock remains considerably below its historical peak achieved in 2000, when the company held a valuation exceeding $600 billion.
Although these recent gains are notable, the long-term trajectory of this large-cap stock has not managed to keep pace with the broader markets. Taking dividends into account, the total return on GE stock since August 2003 has been 28%. In contrast, the S&P 500 Index has delivered a substantial 571% return to its shareholders over the past two decades.
Given this recent surge, it’s prudent to examine whether acquiring General Electric stock at its current valuation is a favorable decision.
Assessing the Prospects for General Electric Stock: Buy, Sell, or Hold?
General Electric stands as a diversified industrial heavyweight, actively engaged in providing a wide spectrum of offerings, including commercial and military aircraft engines and systems, renewable energy generation equipment, grid solutions, as well as gas, steam, and nuclear power generation equipment. Its subsidiary divisions encompass Aerospace, Healthcare, Capital, and Renewable Energy. In line with the recent spin-off of GE Healthcare (NASDAQ:GEHC), the company is also set to spin off its renewable energy and power business in 2024, which will operate under the name GE Vernova.
In the second quarter of 2023, General Electric reported another quarter marked by double-digit growth in orders, revenue, and operating profit. This growth has been propelled by robust market demand across verticals and strong performance in the services sector. GE’s Aerospace business and GE Vernova, in particular, have been standout performers, with the latter booking record orders and achieving improved profit margins in the renewable energy segment.
During this period, revenue surged by 19% to reach $15.9 billion, while adjusted earnings nearly doubled to $0.68 per share, compared to $0.36 per share in the corresponding period of the previous year. Following these robust Q2 results, the management raised its full-year projections for sales, earnings, and cash flows. Notably, in the first two quarters of 2023, GE’s earnings have already exceeded its full-year 2022 results, which reported earnings of $2.35 per share.
What Lies Ahead for GE Stock in 2023?
The Aerospace business faced disruptions in its supply chain due to the COVID-19 pandemic. However, General Electric has effectively navigated these challenges and is now on track to deliver 1,700 LEAP engines to major players like Airbus (FR:AIR) and Boeing (NYSE:BA), ramping up production at an accelerated pace. During the earnings call, CEO Larry Culp noted, “Defense improved this quarter, delivering significant growth. Orders more than doubled. Engine output increased with units up over 70% year-over-year.”
The projections for GE Aerospace have been revised upward, with the segment expected to contribute between $5.6 billion and $5.9 billion toward operating profits in 2023, surpassing the prior guidance of $5.3 billion to $5.7 billion.
In other segments, sales dipped by 1% in GE’s Power division; however, robust growth in the higher-margin services business led to an 18% increase in profits year over year. Culp further stated that renewable energy sales are anticipated to achieve high-single-digit growth this year, a positive shift from the previous projection of mid-single-digit growth.
Determining the Target Price for General Electric Stock
Industry analysts tracking GE stock foresee the company concluding 2023 with a free cash flow of $4.3 billion, projected to further expand by 45% to $6.3 billion in 2024. At present, GE stock is trading at 19.8 times the anticipated 2024 free cash flow, a valuation that appears reasonable should the company’s business turnaround prove successful.
Out of the 15 analysts covering GE stock, eight advocate a “strong buy,” two recommend a “moderate buy,” and five advise a “hold.” The average target price for GE stock is $123.07, indicating a modest increase of around 8% from the current trading price.
While the impending spin-off of GE Vernova might induce some investor apprehension, the persistent demand for clean energy solutions over the next few decades provides a positive outlook. Furthermore, aircraft production is projected to reach historic highs, a development that is expected to significantly bolster GE’s Aerospace business. These trends, coupled with sustained growth in the high-margin services division, suggest that General Electric still possesses further upside potential.
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