Shares of General Electric and 3M are rising after both industrial conglomerates reported earnings beats. Langenberg & Company Principal Brian Langenberg proclaims General Electric's stock is "no longer a dog" while analyzing the trajectory of GE's spin-off companies. Langenberg also shares his outlook on 3M amid various legal battles, calling it "a chemical company on steroids."
Video Transcript
- GE is getting a boost after the company raised its full-year outlook as results beat the street. Strong demand for jet engines is a big part of the story here. GE's Aerospace unit saw a 37% rise in orders as it recovers from the pandemic lows.
Brian Langenberg of Langenberg and Company Principal joins us now. Brian, good to see you here this morning. Look, I think--
BRIAN LANGENBERG: Thank you.
- --investors have only known GE in the past three years to be an outright dog. But you pull up this earnings release. You have total orders, organic orders up 58%. And they're raising the top end of their earnings guidance by $0.30. What in the world is going on here?
BRIAN LANGENBERG: Well, it's no longer a dog. The stock is-- finally started to act well over the last year or so.
And there was a period of time much longer than three years where the wool was pulled from everyone's eyes, I mean, going back over a decade, you know? But once Larry Culp came in a few years ago-- those of us who had known Larry before he was Larry knew that this was going to be a fix.
It wasn't going to be a quick fix. It wasn't going to be any kind of over-promise, under-deliver. --and that he would take a methodical approach to what needs to happen at the company. And that's what's happening.
Now in terms of the orders, aerospace, you know, demand is demand. The Paris Air Show is extremely strong. Everybody is getting orders. So they obviously benefit from that.
But also, if you think about it, as they break the company up and they spin it off, you don't do that spin until you can provide some good results, some good tailwind, pun intended, for the major business units. So yeah. I sound like a little bit of a cheerleader here, but it's everything that the top line would suggest.
- And to your point, we've got the spin coming next year for Vernova, as they have dubbed it, which is power generation, renewable energy. So how should investors be thinking about-- we also, by the way, have GE Healthcare report.
BRIAN LANGENBERG: Right.
- How should investors be thinking about the various component parts here? And what is most attractive, or which asset has what attributes that they should be aware of?
BRIAN LANGENBERG: Great. So the premier franchise of all of these is aerospace. OK, the healthcare business is also very good business. That's pretty much being spun, but the aerospace asset is the key asset when you took a look at Ver something. I wish I could have a job just being paid to come up with these stupid names for new companies.
[LAUGHTER]
I'm just telling you.
- Well, do you know what? Vernova, Brian-- Vernova is kind of cool, no?
BRIAN LANGENBERG: Yeah.
- I don't know.
BRIAN LANGENBERG: No, it's not-- whatever.
- Vernova, Vervendi--
BRIAN LANGENBERG: --I don't care.
- --Mondelez, you know? We have a nice list of these kinds of things.
BRIAN LANGENBERG: This is nothing new.
- Right.
BRIAN LANGENBERG: This is nothing new. A little segue into aerospace, Textron was a textile company in New England. And somewhere in the late '50s, early '60s, someone said, you know, if you put a tron on it, you'll get a higher multiple. So this is nothing new. But in terms of more substantive analysis--
[INTERPOSING VOICES]
- --Larry Culp, GE-- Larry, if you're listening, ge.ai, maybe that's the way to go.
BRIAN LANGENBERG: Yeah, well, the thing is, he's a leader. He's not a fad chaser. And that's, you know, fad chasing is what dogged the old General Electric. Blocking, tackling, pursuing excellence is what you have now.
So to come back to your question, aerospace is the best franchise of these. You know, when you start talking about power and renewable, obviously, large franchises, are they as attractive? I don't think so. But they're good businesses, and by themselves, they can pursue their own strategies.
And the nice thing about when a business has been locked in a large conglomerate for a long time and had underachieved for a while is, you know, when a business is on its own the-- whoever's running that business has to answer to the whole market, not just a corporate. So it's a positive development for all those businesses. I think aerospace is the best one of the three, but they should all do better on their own.
- I want to turn to another conglomerate that is more in a challenged place right now, I think safe to say, and that is 3M. The company--
BRIAN LANGENBERG: Yes.
- --is just overshadowed with legal liabilities, both from the so-called "forever chemicals" and from some military stuff as well. That said, they beat estimates. So, you know, it doesn't seem like it's a free and clear situation here. But investors seem to be happy about the numbers today.
BRIAN LANGENBERG: Yeah, they're happy about the numbers today. And just stepping back on 3M, five years ago, four years ago, three years ago, this was looked at by the street, including myself, as just being a premier company, very-well-run business, outstanding in operations. And really, what they are is a specialty "chemical company on steroids" for the most part. And there have always been very good at making it by the inch, sell-- or make it by the mile, sell it by the inch.
And if you go in the facilities, the way they run them, they really focus on that. But you always had a lawsuit here, a lawsuit there. And I'm not a legal analyst. I don't know of anybody that got on the legal thing early and said, wow, this is going to blow up. But it did, OK?
So to frame this, if you pretend for a minute, there was no legal issue or had nothing had come up, this is a company that-- where the stock should be worth at least $200 million. Now the talk is around about $20 billion-- up to $20 billion of total liability. There's some bid asked around that.
Well, that's $40 a share, $38, $40 a share. So take that 200, subtract $40. You still have intrinsic value of about $160. So are you going to get that today or tomorrow? No.
Think of 3M as a beauty pageant winner that's got some mud on her, and you got to account for it. But she's going to come out of this, OK? That's how I see this playing out. It's going to take a while.
- Those words are Brian's, not mine. Before I let you go, someone that has a lot of--
BRIAN LANGENBERG: I am my own HR department, so--
[LAUGHTER]
- As someone that knows a lot about industrials, now that we got GE, now that we got 3M, what is your favorite stock to own in industrials?
BRIAN LANGENBERG: At this exact precise moment, and have a hold rating on it, OK? So this is not a ratings change. But, you know, they told us, oops, we got a problem with some of our engines. It's going to cost $500 million. And at this precise moment, the market has taken about $19 billion out of the market cap, so 500 million problem, $19 billion out of the equity market value.
Now if there's another shoe to drop, obviously, that analysis has to get modified, but just-- I'm just looking at that and going, you know, unless Pratt & Whitney has forgotten how to build aircraft engines, it might be a bit of an overreaction. Otherwise, the only other name I've focused on is Boeing. And it's simple math.
Their commercial aviation or commercial aircraft had gone from $60 billion in revenue to a low of under $20 billion. And when you are-- when 60% of your sales are going to triple over the next few years just to recover to where they were, that can't-- not work.
- Really helpful analysis--
BRIAN LANGENBERG: It cannot work.
- --on a busy morning, Brian. Real good stuff here. Brian Langenberg, Langenberg--
BRIAN LANGENBERG: Pleasure.
- --and Company Principal, good to see you. Talk to you soon.
