General Electric will emerge as an aviation and defense pure play in early 2024 after completing its big breakup. Is GE stock a buy as it breaks out to multiyear highs?
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 pure play.
At an investor event March 9, General Electric gave upbeat long-term outlooks for both GE Aerospace and GE Vernova. That pushed GE stock to a 58-month high March 9.
GE Aerospace is benefiting from the recovery in commercial air travel.
In early January, General Electric spun off its health care business, which now trades as GE HealthCare Technologies. The storied conglomerate had announced its big three-way breakup in late 2021.
In Q4, GE earnings jumped 73%. Strength in aviation and power was offset by weakness in GE's renewable energy business.
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 three-weeks tight pattern. The breakout saw shares hit a five-year-plus high, while extending a huge rally in the first quarter of 2023.
Earlier in February, shares of GE staged a successful breakout past 84.12. GE stock peaked at 94.94 on March 9 after management gave a strong aerospace outlook.
Year to date, GE stock is up more than 45% vs. a 6.4% gain for the S&P 500.
The relative strength line for GE stock rallied in the past year, but has flattened out in March. 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 81 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 December, 1,789 funds owned shares.
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GE Earnings
On key earnings and sales metrics, GE stock earns an EPS Rating of 46 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.
GE earnings for the fourth quarter were led by its aviation business. Its onshore wind business continued to be a drag on earnings.
Analysts on Wall Street expect GE earnings to decline 25% per share in 2023, before rebounding 94% in 2024.
Free cash flow is closely watched as a sign of the health of GE's operations. It plunged in 2020, rebounded in 2021, and fell in 2022, FactSet shows.
Out of 21 analysts on Wall Street, 14 rate GE stock a buy. Seven have a hold and no one has a sell.
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GE Aerospace
Aviation — sometimes called GE's "crown jewel" — makes jet engines and aviation systems for plane makers including Boeing. 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 are easing.
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Rivals To General Electric
Rivals to General Electric include Raytheon Technologies and Siemens' 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, Honeywell and Roper Technologies.
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Is GE Stock A Buy Now?
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 topped a three-weeks-tight, follow-on buy point March 31. That follows a successful prior breakout in February and a massive rally year to date.
Bottom line: GE stock is a buy.
Over the long term, buying an index fund, such as SPDR S&P 500, 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.
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