General Electric (GE) Up 36% YTD: Will the Momentum Continue?
Shares of General Electric GE have rallied 36.4% in the year-to-date period, outperforming the industry’s 0.4% dip. The upside can be linked to strength across the Aerospace segment (which accounts for the bulk of the company’s top line), recovery in GE Vernova’s (the combined operations of GE Power and Renewable) operations and shareholder-friendly policies.
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Commercial aerospace strength is driving growth of the Aerospace segment. Significant growth in LEAP engine deliveries is driving commercial engines revenues. Growth in the commercial services business and a significant increase in defense engine orders also bode well for the segment’s growth. The segment’s revenues and orders jumped 27% and 25% in the first six months of 2023, respectively.
After months of softness, a rebound in demand at the Power segment augurs well for General Electric. Strength in GE Gas Power’s heavy-duty gas turbine transactional services and GE gas turbine business is aiding the Power segment. The company expects low-single-digit revenue growth for the Power segment in 2023 driven by Gas Power services. The acquisition of Nexus Controls (April 2023), which allows the creation of a single, full-service controls business line for further development of GE’s proprietary Mark Vle controls systems platform, should bolster the segment’s growth.
With higher equipment demand at Grid and Onshore Wind in North America, signs of progress in the Renewables segment are encouraging. For 2023, the company expects GE Renewable Energy revenues to increase in the high-single digits.
Given continued strength in GE Aerospace and improvement in GE Vernova, General Electric has raised its full-year guidance. The company now expects revenues to increase in low double digits compared with the high-single-digit growth anticipated earlier. It expects adjusted earnings of $2.10-$2.30 per share compared with $1.70-$2.00 estimated earlier. GE expects an operating profit of $4.7-$5.1 billion for 2023. It expects free cash flow of $4.1-$4.6 billion for 2023 compared with $3.6-$4.2 billion estimated earlier.
General Electric’s commitment to reward its shareholders through dividends and share buybacks is encouraging. In the first six months of 2023, the company paid dividends of $350 million, up 19% year over year. In the same period, GE repurchased 6.2 million shares for $0.6 million under the above authorization.
Will the Uptrend in Shares Continue?
General Electric is expected to continue to thrive on the back of momentum across its Aerospace segment as demand for jet engine spare parts and services increases with the boom in air travel demand. GE expects Aerospace revenues to increase in the high teens to 20% in 2023.
In March, General Electric provided a bullish long-term view for the Aerospace segment. For 2025, the company expects the segment’s revenues to increase in the low double digits to mid-teens. For the long term, GE predicts mid-single to high-single-digit revenue growth for the Aerospace segment. It expects continued margin expansion for the unit over the long term.
Continued recovery in GE Vernova’s operations is expected to foster GE’s growth. The recent acquisition of data integration platform company, Greenbird Integration Technology AS, bolsters GE Vernova’s growth. The buyout facilitates GridOS, the first software portfolio designed for grid orchestration, by adding new capabilities for connecting systems and integrating data across the grid smoothly.
Zacks Rank & Other Stocks to Consider
General Electric sports a Zacks Rank #1 (Strong Buy).
Below we discuss some top-ranked industrial companies:
Flowserve Corporation FLS presently sports a Zacks Rank #1. The company pulled off a trailing four-quarter earnings surprise of 6.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
Flowserve has an estimated earnings growth rate of 79.1% for the current year. The stock has jumped 31% so far this year.
Graham Corporation GHM currently flaunts a Zacks Rank #1. The company pulled off a trailing four-quarter earnings surprise of 243.1%, on average.
Graham has an estimated earnings growth rate of 400% for the current fiscal year. The stock has rallied 68.1% so far this year.
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