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In late 2021, U.S.-based industrial giant General Electric (GE) said it would split into three companies, focusing separately its aviation, energy, and healthcare businesses. The healthcare unit, GE Healthcare (GEHC), was spun off in December 2022, while the energy unit - GE Vernova - will make its split from GE Aerospace this April.
By restructuring into three global public companies, GE aims to enhance shareholder value by tailoring capital allocation and driving long-term growth for the companies. Since the end of 2021, GE stock has returned more than 160% to shareholders, as investors are optimistic about the company’s turnaround efforts. Let’s see if GE stock is a buy ahead of the upcoming spin-off.
Is General Electric Stock a Good Buy?
Investors are bullish on General Electric stock right now due in part to its compelling guidance. According to consensus estimates, General Electric is forecast to increase revenue from $68 billion in 2023 to $78 billion in 2025. Its adjusted earnings are forecast to expand from $2.81 per share to $6 per share over this period.
GE expects its aviation business, GE Aerospace, will experience double-digit revenue growth in 2024, while profit growth will range around 15%. The energy business, GE Vernova, will generate free cash flow in 2024 as the power and electrification segments will be accretive to earnings, a portion of which will be offset by the wind power segment.
GE expects the power business to grow by mid-single digits this year and bring in close to $2 billion in EBITDA (earnings before interest, tax, depreciation, and amortization). Further, GE Vernova ended 2023 with a backlog of $73 billion, providing investors with significant revenue visibility. Moreover, 81% of its backlog is tied to high-margin services, allowing GE to more than double earnings in the next two years.
JPMorgan is Bullish on GE Stock
Analysts at JPMorgan (JPM) are bullish on GE, and recently raised the stock's price target from $166 to $180 - a premium of about 6% to current levels. The brokerage cited multiple factors for the GE stock upgrade, including the company’s robust business model, multi-year backlog, and the upcoming spin-off.
GE Vernova’s power segment is already accretive to cash flows and is a higher-margin business. The electrification business should benefit from multiple secular headwinds as the world moves toward cleaner energy solutions. While profit margins for the wind business might remain volatile in the near term, they should improve once the legacy backlogs are executed.
Finally, GE Aerospace has a joint venture with CFM International, which supplies engines to Airbus (AIR.FP) and Boeing (BA), two of the largest airline manufacturers in the world. Given the widening backlog of orders for both Airbus and Boeing, this segment should derive stable revenue and cash flow in the next decade.
What is the Target Price for GE Stock?
GE stock might seem expensive, priced at 36x 2024 earnings. But earnings are forecast to grow by 37.6% annually in the next five years.
Out of the 16 analysts tracking General Electric stock, 11 recommend a “strong buy,” one recommends a “moderate buy,” and four recommend a “hold.” The average target price for GE stock is $158.64, which is below the current trading price. The Street-high target of $185 implies expected upside of roughly 9%.
