GE Stock Is Flying: Here’s Why Its Best Prospect for Growth Is Aerospace

Cincinnati, Ohio. The home of GE Aerospace. March 9th, 2023. Welcome to General Electric’s (GE) Investor Conference 2023.

GE got the day off to a good start. I think. The firm informed us that they are doing about as well as they said they would. GE, now sans GE Healthcare Technologies (GEHC) , reaffirmed its fiscal year 2023 guidance with organic revenue growth still expected to post in the high-single-digit range, adjusted EPS still expected to land in between $1.60 and $1.95, and free cash flow generation of $3.4B to $4.2B. Wall Street is at $1.94 for the full year adjusted EPS number.

The firm went a step further in reaffirming guidance for both GE Aerospace and GE Vernova.

For GE Aerospace, organic revenue growth is seen in the mid-to-high teens, operating profit is seen at $5.3B to $5.7B, and free cash flow is expected to grow.

GE Vernova, which is the firm’s power segment, is expected to be spun off or out in early 2024. For GE Vernova, organic revenue growth is seen in the low-to-mid single digits, operating profit/loss is seen at a loss of $0.6B to $0.2B, and free cash flow is seen at flat to slightly improved.

There was some news that we had not heard before. Going back to the power unit, which is GE Vernova, operating margin is expected to “eventually” reach high-single digits. No actual timeline is offered there, but the 2022 comparison was close to -3%, so the improved outlook is welcome.

What About GE?

I will say this. GE Healthcare has been a hotter ticket than I expected since that name was spun off from the parent. We won’t hear from GEHC until early May. That’s a ways off. We are now about six weeks past GE having reported the firm’s fourth quarter results and about six weeks to go until GE reports the current quarter.

Right now, Wall Street is looking for GAAP of $0.21 on revenue of $13.55B. That would compare to EPS of $0.21 for the year ago comp as revenue growth would come to a contraction of roughly 21%.

I think obviously, the third of this firm that appeals to me the most as an investor is the aerospace business. That’s where the best prospect for growth will be. That part of the firm will be the inheritor of the GE name and logo, and that piece is ultimately where CEO Larry Culp is headed. I do think that if you’re a potential shareholder that you do want Larry Culp in charge.

This morning, Culp said, “The future is bright at GE. We are operating from a stronger foundation and a fundamentally simpler business that is creating significant value today and going forward. GE Aerospace is defining flight to today, tomorrow, and the future with our differentiated technology and extensive service capabilities.”

Investing

It really comes down to this for me. Am I willing to own GE Vernova in order to also own GE Aerospace? I may have underestimated GE Healthcare. I don’t want to make that mistake again. Especially if GE Vernova is headed for operating profitability.

In hindsight, the double-bottom reversal was so easy to see. The pivot, by the way, came at a rough $63. That probably would have put my target price close to $75. Well, GE is well past that spot now, and has not come into contact with either its 50 day or 200 day SMAs (simple moving average) since December.

Chase? At this point? I can not do that. Wait? I think so. A 38.2% Fibonacci retracement of the October to the present rally would put the shares around $73. That would also put the 50 day SMA. A 61.8% retracement puts the 200 day SMA back in play. That’s the big one.

I think I am okay with waiting (or bidding, GTC style – Good ‘Til Canceled) for an entry down around $73 and then when that level is reached, being willing to scale the order into $63. (Some folks call that laddering in.) An average point of entry close to $68 going into the Vernova spin would be my current thinking. I am not going out and paying $86 or more today as the firm holds their pep rally in Cincy. That’s for sure.