General Electric (NYSE:GE) disclosed Q2 2023 earnings before the market opened on Tuesday. Investors were pleased with what they heard. As a result, GE stock is up more than 4% so far this morning.
GE is one of those stocks I’ve shoved to the back of my mind in order to avoid hearing about its continual battles to regain relevance. Since former Danaher (NYSE:DHR) CEO Larry Culp took over the industrial conglomerate in October 2018, shareholders have been on a rollercoaster ride as the former Danaher CEO used every trick in the book to rekindle GE’s share price.
Today’s fantastic news caused me to sit up and take notice that GE stock has risen 117% in the last year and 65% since Culp took control.
Could GE be on the verge of a comeback? I believe so.
$200 Is on Its Way
The last time GE shares traded above $200 was in July 2016, nearly two years before Culp was appointed CEO. It was April 2008 before that. Despite recent improvements, it is still down 68% from its all-time high of $360.67 in September 2000.
During Culp’s nearly five years as CEO, the corporation has seen numerous transformations. The GE of today bears little resemblance to the company that existed at the start of the century.
The most major change for GE in 2023 is the absence of a healthcare division. On January 4, GE HealthCare Technologies (NASDAQ:GEHC) was spun off. GE shareholders received one GEHC share for every three shares owned. They are currently trading around $80, up from $56 at the time of the split.
GE retained 19.9% of the healthcare business. It was reduced to 13.5% as of June 30, generating $2.2 billion from the fall in shareholdings.
In the future, GE plans to split its GE Aerospace and GE Vernova operations in early 2024. These will be tax-free spinoffs as well. However, they are currently included in the company’s Q2 2023 results.
GE’s sales climbed by 18.5%, from $13.44 billion in Q2 2022 to $15.93 billion in Q2 2023, excluding the healthcare sector. GE Aerospace’s sector profit was $1.44 billion, a 26% increase over the previous year. GE Vernova’s sector profit was $120 million, up 264% from a $73 million loss the previous year.
Orders at GE Aerospace surged 37% to $9.45 billion. Its orders during the first six months of 2023 were $17.66 billion, a 25% increase year on year. Its aerospace division is self-sufficient.
As a result, it forecasts low-double-digit sales growth for the entire year of 2023, profits per share of $2.20 at the midpoint of its range, up from $1.85, and free cash flow of $4.35 billion, up from $3.9 billion.
GE’s free cash flow yield is 3.7% based on a $119 billion enterprise value. Anything between 4% and 8% is considered fair value and a decent price for the shares.
With free cash flow expected to increase by the quarter, the free cash flow yield should reach this level by the end of 2023.
GE’s Wind Business is Growing
As I have stated, GE’s aerospace division is preparing to go independent. It has a lot of work ahead of it. In addition to his duties as GE CEO, Larry Culp became the unit’s CEO in June 2022.
GE Aerospace will be the new name of GE after the separation of GE Vernova is completed.
GE Vernova, the company’s renewable energy and power divisions, will be less profitable. This is due to the fact that its wind energy industry continues to lose money. In the first six months of 2023, the company lost $773 million on sales of $6.69 billion.
There is, however, light at the end of the tunnel. Its orders in the second quarter were $8.29 billion, more than doubling from the previous year. Culp believes that the margins on these orders should be far greater.
If this is the case, its route to profitability may be closer than investors believe. The wind turbine will not be profitable in 2023, and it may not be profitable in 2024, but it should be profitable by 2025 or 2026.
If the healthcare spinoff is any indicator, present shareholders will benefit greatly from the split of GE Vernova and GE Aerospace.
Despite GE stock’s large gains in 2023, 2024 should provide more once investors can more easily value both businesses separately.
You may be late to the party, but that doesn’t mean you should avoid GE’s resurrection. It still has plenty of gas in the tank.
Featured Image: Megapixl
