JPM thinks GE's stock (GE) could power down in the months ahead after a sizzling five-month run.
"While we see an excellent business in aerospace and potential in Vernova, GE is up ~80% over the past five months vs. 13% for the S&P 500," JPMorgan analyst Seth Siefman wrote in a client note on Tuesday ahead of a hotly anticipated March 9 GE investor day. "Our sum of the parts-based December 2023 price target therefore leaves limited upside."
Siefman has a Neutral rating on the stock of the industrial icon, which is in the process of splitting up into several parts. Long-time market-moving GE analyst Steven Tusa is no longer running point on the name.
The company is being divided into three separate companies — aviation, healthcare, and energy — in a plan unveiled late in 2021. GE Healthcare (GEHC) was spun off into a public company in January of this year. The energy business — dubbed Vernova — is slated to debut on the public market by early 2024.
"This is my one-year anniversary with the company, and people have been super energized about our opportunity to be separate," GE Healthcare CEO Peter Arduini told Yahoo Finance Live on January 4. "It's brought more employees of capabilities into the company."
Siefman thinks investors may be overlooking a few important risks on GE's stock as they plow into a re-vamped company which on paper should be more focused and leaner, potentially leading to better profits.
"On the aerospace side, GE and others are clearly benefiting from a Goldilocks environment for maintenance where global travel demand is surging and Boeing and Airbus cannot build enough new planes," Siefman explained. "Air travel demand has been quite resilient but if it comes under pressure, the aftermarket growth outlook would suffer and there is also a threat from the gradual ramp in new aircraft deliveries eating into maintenance activity."
In terms of the energy business, Siefman added, "the scale of the EBITDA and FCF growth required at Renewables is a natural focus for investors, particularly with near-term challenges likely to persist and Vernova’s success will depend to some degree on yet-to-be-determined mechanisms of the IRA. Lingering Insurance exposure is another risk — and an opaque one — in part because GE may be unable to unload Insurance, leaving the potential for incremental contributions."
Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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