General Electric (GE) is poised to emerge as an aviation company in early 2024 after shedding a series of businesses over the past several years. Is GE stock a buy after its big rally?
In Q3, GE earnings tumbled 39%, the industrial giant said Oct. 25. Weakness in its renewable energy business offset strength in aviation.
Still, that followed EPS gains of 85% and 255% in the prior two quarters.
In early January, General Electric spun off its health care business, GE HealthCare Technologies (GEHC). The spinoff of its power and renewable energy businesses is set for early 2024.
That will pave the way for the “new GE,” GE Aviation, to emerge.
Industrial companies are grappling with supply-chain issues and macro uncertainties. Other headwinds include the rapid rise in inflation, the China Covid situation, and the Russia-Ukraine war.
Shares of General Electric rose for a 10th straight session on Jan. 12., in a powerful rebound from the 10-week moving average over that span. GE stock is just below a 52-week high of 80.98 and above the 50-day moving average. It’s working on a 90.74 buy point in a long and deep cup base.
The relative strength line for GE stock has bolted to a 52-week high, according to MarketSmith charts. 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 72 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 95, meaning it has outperformed 95% of all stocks in IBD’s database over the past year.
GE remains a popular stock on Wall Street. As of September, 1,825 funds owned shares.
On key earnings and sales metrics, GE stock earns an EPS Rating of 42 out of a best-possible 99, and an SMR Rating of D, 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 third quarter were led by its aviation business.
The company also reported improvement in its health care segment, but its energy businesses lagged.
Free cash flow (FCF) is on the upswing. The FCF measure is closely watched as a sign of the health of GE’s operations. It plunged in 2020, then rebounded in 2021.
On Jan. 24, GE is set to report earnings for Q4 2022. Management’s guidance for 2023 earnings and FCF, after its GE HealthCare spinoff in January, is awaited.
Out of 22 analysts on Wall Street, 15 rate GE stock a buy. Seven have a hold and no one has a sell.
Aviation — GE’s “crown jewel” — makes jet engines and aviation systems for plane makers including Boeing (BA). GE Aviation 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. Then disruptions from the Ukraine war hurt supply chains.
For GE Aviation, many of those headwinds show signs of easing.
Rivals to General Electric include Raytheon Technologies (RTX) and Siemens’ (SIEGY) 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 (MMM), Honeywell (HON) and Roper Technologies (ROP).
General Electric’s poised for a huge transformation, shedding its diversified past to emerge as an aviation-focused business.
However, recession fears are growing, as rate hikes to control inflation weigh on global economies. The inflationary climate and the Russia-Ukraine war add to business uncertainty.
For a cyclical industrial giant like General Electric, these are challenging headwinds.
From a technical perspective, GE stock has rallied in large part due to aviation momentum. Share are near a 52-week high but below a 90.74 buy point from a cup base.