Up 53% YTD, is General Electric a Buy?

In the late 1990s and early 2000s general electric (NYSE:GE) was one of the world’s largest companies by market capitalization. But a lot has changed since then, as the company grew so large that it was hit hard by the Great Recession.

The once-giant conglomerate expanded beyond selling light bulbs and appliances into energy, media, aerospace, banking and finance, and healthcare, before eventually splitting into three different companies.

In 2023, the conglomerate spun off GE HealthCare Technologies (NASDAQ:GEHC) and earlier this month transferred its energy holdings to GE Vernova (NYSE:GEV). This leaves only the existing GE businesses under the existing GE ticker, but no longer resembles the existing GE conglomerate. In fact, the company is now known as GE Aerospace, and as the name suggests, it makes jet engines for commercial, military, business, and general aviation aircraft.

GE stock has been on fire this year. It’s up about 53% year-to-date (YTD), making it the fourth-best performing stock in the S&P 500 this year, but is it still a buy?

that much new GE

The new GE Aerospace has only been independent of GE Vernova for about a week, so investors may be wondering whether this year’s outperformance is due to GE Aerospace or the company it spun off a week ago.

In its most recent earnings report, GE Aerospace reported quarterly revenue of $8.5 billion, up 12% year-over-year, and profit of $1.6 billion, up 11%. The company’s orders for the quarter increased 10% to $10.6 billion, and its full-year order intake rose 22% to $38 billion. GE Aerospace also announced that Emirates has ordered 202 GE9X engines and spares to power its upcoming Boeing 777X aircraft, bringing Emirates’ total order for GE9X engines to 460.

The combined company, which includes GE Power and GE Renewables, now part of GE Vernova, reported revenue of $19.4 billion in the fourth quarter, up 15% year-over-year, and profits rose 20% to $2 billion. It’s part of the profits coming from GE Aerospace.

So while the aerospace segment has certainly performed well, investors will be able to get more insight into how GE Aerospace will perform as a standalone company, starting with its investor day held on March 7. The company called for low double-digit growth in adjusted revenue in 2024. Operating profit is $6-6.5 billion and free cash flow is $5 billion. Operating profit figures are nearly identical to the 2023 segment at the low end, but up 7-8% at the high end of the range.

Dividend increase and promising outlook

GE Aerospace also took a long-term view at its investor day, projecting low-double-digit revenue growth in 2025, operating income of $7.1 billion to $7.5 billion, and 100% free cash flow conversion. This converts all operating profits into free cash flow. Looking ahead to 2028, the company calls for high single-digit compound annual revenue growth, $10 billion in operating profits at a low double-digit compound annual growth rate, and 100% free cash flow conversion.

“Looking forward, our financial outlook is that strong markets and demand for our products and services will drive continued growth across revenue, operating profit and cash generation,” said H. Lawrence Culp, Jr., CEO of GE Aerospace. “It shows confidence in our future.”

The company also plans to return 70 to 75 percent of its free cash flow to shareholders through dividends and share buybacks. In fact, last week GE Aerospace announced a dividend of 28 cents per share, up from 8 cents in the previous quarter. The company also plans to initially offer $15 billion in share buybacks. We will also invest any excess cash in research and development and, where warranted, in “focused” mergers and acquisitions.

With that kind of efficiency, it’s hard not to like that prospect. GE Aerospace has a consensus Buy rating among analysts, even though some analysts lowered their price targets following the GE Vernova spinoff. However, we will likely see these price targets rise again after GE Aerospace posts its first quarter results.

With a trailing P/E ratio of 19, the company looks like a decent value considering its recent price surge. GE may not be what it used to be, but investors should consider its continued growth potential. new GE – GE Aerospace.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.