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Does General Electric (GE) Belong in Your Portfolio?

Although the current macroeconomic climate has been challenging for the industrial sector, General Electric (GE) reported a solid first-quarter performance. Moreover, the company is expected to continue its strong momentum as it raises its earnings and free cash flow estimates. Therefore, it could be wise to add the stock to one’s portfolio. Keep reading...

General Electric Company (GE) delivered a robust financial performance during the first quarter despite the uncertain macroeconomic environment. The company expects to maintain momentum in the upcoming quarters due to strong orders and market demand. Therefore, adding this stock to one’s portfolio could be wise.

In this piece, I have discussed several reasons why it could be wise to buy the stock now.

GE surprised the Street with its strong first-quarter financial performance. During the first quarter, GE’s EPS came 97.6% above analyst estimates, while its revenue beat the consensus estimate by 7.7%. During the first quarter, GE completed the spin-off of GE Healthcare into a publicly traded company while retaining an approximately 19.9% stake in GE HealthCare common stock.

GE’s Chairman and CEO and GE Aerospace’s CEO, H. Lawrence Culp. Jr. said, “The GE team is off to an encouraging start in 2023, with our results reflecting robust market demand and our progress operating leaner and more focused businesses.”

“In the first quarter, we delivered double-digit top-line growth with all segments up organically and continued strength in services, as well as margin expansion in all segments. And we reported our first positive free cash flow in the first quarter in nearly a decade.”

The recovery in air travel is driving sales and repairs at GE’s aerospace unit. GE’s aerospace unit’s sales increased 25% year-over-year to $6.98 billion. For fiscal 2023, GE raised the lower end of its adjusted EPS from $1.60 to $2 to $1.70 and $2. Its free cash flow is now expected to come between $3.60 billion and $4.20 billion, up from the previously forecasted range of $3.40 billion and $4.20 billion.

GE’s stock has gained 66.5% in price over the past nine months and 74.6% in price over the past year to close its last trading session at $101.52.

Here are some factors that could influence GE’s performance in the upcoming months:

Positive Developments

On April 19, 2023, GE Aerospace signed a four-year agreement with Lockheed Martin (LMT) to support avionics and electrical power systems. The deal entails maintenance, repair, and overhaul for GE Aerospace systems on the F-35 Lightning II aircraft, with GE committed to supporting its MRO customers' growing demands by strengthening lead time, supply availability, and delivery.

On March 22, 2023, GE Gas Power, part of GE Vernova, and Svante announced a joint development agreement (JDA) to develop and evaluate solid sorbent-based carbon capture technology for natural gas power generation applications.

GE Vernova’s CEO, Scott Strazik, stated, "We are excited to work with a technology innovator like Svante to drive collective progress on developing carbon capture solutions for the energy industry, aiming to deliver more sustainable, affordable, and reliable electricity for more people."

On February 14, 2023, GE announced that it had signed an agreement with Air India for the largest LEAP order to date for 800 engines, as well as 40 GEnx and 20 GE9x engines and a multi-year TrueChoice engine services agreement.

Robust Financials

For the fiscal quarter that ended March 31, 2023, GE’s non-GAAP revenues increased 15% year-over-year to $13.70 billion. The company’s non-GAAP earnings came in at $296 million, compared to a non-GAAP loss of $102 million in the prior-year quarter. In addition, its non-GAAP EPS came in at $0.27, compared to a non-GAAP loss per share of $0.09 in the year-ago period.

High Profitability

In terms of the trailing-12-month net income margin, GE’s 11.31% is 76.3% higher than the 6.42% industry average. Its 8.12% trailing-12-month levered FCF margin is 56.3% higher than the 5.20% industry average. Likewise, its 22.58% trailing-12-month Return on Common Equity is 63.3% higher than the industry average of 13.83%.

Mixed Analyst Estimates

Analysts expect GE’s EPS and revenue for fiscal 2023 to decline 21.9% and 17.1% year-over-year to $2.05 and $63.45 billion, respectively. The consensus EPS estimate of $4.04 for the fiscal year 2024 represents a 97.1% improvement year-over-year, while its consensus revenue estimate of $68.45 billion for the same year indicates a 7.9% increase over the prior-year period.

POWR Ratings Show Promise

GE has an overall B rating, equating to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GE’s stock is trading above its 50-day and 200-day moving averages, justifying its B grade for Momentum.

GE also has a B grade for Sentiment. This is justified as 14 of the 18 Wall Street analysts that rated the stock, have rated it Buy.

Within the A-rated Industrial - Manufacturing industry, GE is ranked #7 out of 36 stocks. Click here to access GE’s Value, Growth, Stability, and Quality ratings.

Bottom Line

GE’s stock is trading above its 50-day and 200-day moving averages of $97.44 and $74.65, indicating an uptrend. After better-than-expected financial performance in the first quarter, the company is likely to maintain it throughout the year. Its strong order book and strategic agreements will boost its growth in the long term.

Given its robust financials and high profitability, it could be wise to add the stock to one’s portfolio.

How Does General Electric Company (GE) Stack Up Against Its Peers?

GE has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Industrial - Manufacturing industry with an A (Strong Buy) or B (Buy) rating: CompX International Inc. (CIX), The Timken Company (TKR), and Sensata Technologies Holding plc Ordinary Shares (ST).

The Bear Market is NOT Over…

That is why you need to discover this timely presentation with a trading plan and top picks from 40 year investment veteran Steve Reitmeister:

REVISED: 2023 Stock Market Outlook > 

GE shares were trading at $103.52 per share on Friday afternoon, up $2.00 (+1.97%). Year-to-date, GE has gained 104.03%, versus a 10.19% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.


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