Trystan Casey
General Electric (GE) is a multinational conglomerate with a strong focus on aerospace and defense. The company has a history dating back to the late 19th century and has been a component of the Dow Jones Industrial Average for over 100 years. In recent times, GE has faced challenges with its stock price and profitability, leading to a decline in its former size and a broad restructuring. Despite this, GE remains a significant force in its three main business sectors: aerospace, energy, and healthcare, employing hundreds of thousands of people worldwide. With the company's planned spinoff into three separate companies, each focusing on a particular industry, and its drive to improve profitability, particularly in the wind segment, it is worth considering whether investing in General Electric is a wise decision.
| Characteristics | Values |
|---|---|
| Current stock price | $121 per share |
| Intrinsic value | $163.95 per share |
| High beta | Yes |
| Current company value | $450 million |
| Number of companies GE is splitting into | 2 or 3 |
| Names of new companies | GE Vernova, GE Aerospace, GE HealthCare |
| Date of spinoff | April 1, 2024 |
| Record date for the spinoff | March 19, 2024 |
| Number of job cuts in 2017 | 12,000 |
| Stock price decline in 2017 | 45% |
| Current status of the company | Bargain |
| Risks | 3 warning signs |
| CEO | Larry Culp |
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What You'll Learn
GE's stock price is stable but cheap
General Electric (GE) stock has been described as stable but cheap. GE's stock price is currently trading at US$121 on the share market, with an intrinsic value of $163.95. This indicates that the stock is undervalued and presents a buying opportunity for investors.
However, it's important to note that GE's share price is volatile, and the price could sink lower. The company has faced challenges in recent years, including negative earnings growth and a decline in its former size. GE's management is working to improve profitability, particularly in the renewable energy sector, by focusing on its backlog of less-profitable offshore wind contracts.
In 2024, GE underwent a significant change, splitting into three companies: GE HealthCare, GE Aerospace, and GE Vernova (energy). This move was intended to allow each entity to focus on its core strengths and growth opportunities. GE Vernova encompasses GE Power and GE Renewable Energy, while GE Aerospace includes the commercial and defense aircraft engines, integrated engine components, and electric power segments.
Despite its challenges, GE remains a force in its three main business sectors, employing hundreds of thousands of people worldwide. The company has a strong focus on aerospace and defense and has made significant investments in U.S. manufacturing.
In summary, while GE's stock price is stable and undervalued, presenting a buying opportunity, investors should carefully consider the risks associated with the company's negative growth prospects and volatile share price.
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GE's company restructuring
General Electric (GE) has been a household name since its incorporation in 1892. The company grew from manufacturing electrical gear, light bulbs, and appliances to becoming a global conglomerate through acquisitions, innovations, and reorganisations.
However, GE's decline began in the early 2000s, with poor management decisions and the 2008 financial crisis, which nearly bankrupted its most profitable business, GE Capital. In 2017, GE announced it would cut 12,000 jobs, and the stock fell 45% over the year. The company also unveiled a broad restructuring, reducing its quarterly dividend.
In 2018, GE's board ousted two CEOs in less than two years due to the company's struggles with weak profits and mounting debt. The new CEO, Larry Culp, began a multi-year transformation of the company, focusing on paying off debt and improving cash flows by streamlining operations and cutting costs.
In 2024, GE completed its breakup into three independent public companies: GE Aerospace, GE Vernova, and GE HealthCare. GE Aerospace retained the GE symbol and focuses on its aerospace business, generating revenue from services. GE Vernova owns the company's power, renewable energy, and electrification segments, and GE HealthCare specialises in medical equipment.
The breakup was a landmark decision, as investors generally do not favour conglomerates, preferring to diversify their portfolios themselves. The restructuring also aimed to improve the wind segment's profitability by reducing the backlog of less profitable offshore wind contracts.
While some investors see GE as a bargain, others caution against investing due to the company's volatile stock price and expected negative earnings growth in the coming years.
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$22.81 $28.03
GE's negative earnings growth
General Electric (GE) has been a topic of debate among investors, with some highlighting its potential for growth and recovery, while others express concerns about its financial health and future prospects. One key concern is the company's negative earnings growth, which has been highlighted by various sources.
Analysing GE's financial performance, the company has experienced negative earnings growth over the past year, making it challenging to compare with its industry peers. While GE's specific growth rate is unclear, the fact that it is negative contributes to a less favourable perception of the company's stock. This negative growth rate could be a crucial factor in investors' decisions, potentially discouraging them from investing in the company.
However, it is worth noting that GE has been taking steps to improve its financial health and position in the market. For instance, in 2023, the company reported significant improvements, including tripling earnings and generating substantially more free cash flow. Additionally, GE Aerospace demonstrated solid revenue and operating profit improvement, reflecting the strength of its Commercial Engines and Services. GE Vernova, focused on renewable energy and power, also delivered impressive results, with double-digit revenue growth and positive profits and free cash flow. These improvements indicate that GE is actively working to enhance its financial performance and could suggest a potential turnaround for the company.
In conclusion, while GE's negative earnings growth is a cause for concern and has likely impacted investors' decisions, the company's recent financial improvements and the potential for future growth in specific business areas, such as GE Vernova and GE Aerospace, cannot be ignored. Therefore, investors considering GE as an investment opportunity should carefully evaluate the risks and potential rewards, keeping in mind the company's efforts to enhance its financial health and long-term prospects.
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GE's undervalued stock
General Electric (GE) has been a topic of discussion for investors, with some considering it a bargain and an undervalued stock, while others advise staying away from it.
GE's Current Position and Future Prospects
GE is currently trading at US$121 on the share market, while its intrinsic value is estimated to be $163.95. This indicates that the stock is undervalued and presents a buying opportunity for investors. However, it's important to note that GE's share price is volatile, and the price could sink lower, providing another chance to buy at a later date.
The company is also expected to split into two parts: GE Vernova and GE Aerospace. GE Vernova will include the power, renewable energy, and electrification segments, which are now solid earnings and cash-flow generators. GE Aerospace will retain the GE ticker and focus on the aerospace industry. The spinoff will impact the value of GE shares, and investors need to consider these changes when making investment decisions.
Risks and Concerns
Despite the undervaluation, there are concerns about GE's future prospects. The company is expected to deliver highly negative earnings growth in the coming years, increasing the risk of future uncertainty. GE also faces challenges with legacy costs, making it difficult to turn a profit on their projects. Some investors view GE as a "'gutted husk" due to short-term gains under previous leadership, which have led to long-term issues.
Investor Strategies and Recommendations
Value investors, who focus on identifying undervalued companies, use metrics such as the P/S ratio (price-to-sales ratio) and earnings outlook to evaluate stocks. While some investors are hesitant about GE due to the risks, others see the current undervaluation as an opportunity to make a decision. It is recommended that investors thoroughly understand the risks and consider diversifying their portfolios before investing in potentially risky stocks.
In summary, while GE's stock is considered undervalued, investors should carefully weigh the risks and future prospects before making any investment decisions.
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GE's offshore wind business
GE Vernova's offshore wind business has a strong foundation, with a focus on innovative wind turbine technology. The company's Haliade-X wind turbine is designed to maximize offshore output with minimal investment, positioning it as one of the most powerful turbines on Earth. This technology has been adopted for several projects in the US, showcasing its competitiveness in the market.
However, GE's offshore wind segment has faced setbacks, including a $6 billion backlog of less-profitable contracts at the start of 2023. The company has been working to improve profitability by reducing this backlog and being highly selective about new contracts. The dramatic increase in offshore wind's profitability is expected to take a few years to materialize, and investors should be aware of the potential risks associated with negative growth prospects.
Despite the challenges, GE Vernova's commitment to supporting impacted employees and adapting to industry-wide challenges demonstrates its resilience. The company's drive to improve the wind segment's profitability and its focus on renewable energy sources align with the growing global demand for clean energy solutions.
In summary, while GE's offshore wind business faces short-term headwinds, its long-term prospects remain promising. The company's innovative technology, focus on profitability, and commitment to renewable energy position it for potential growth in the expanding clean energy sector. However, investors should carefully consider the risks and monitor the company's progress in addressing its challenges.
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Frequently asked questions
The answer to this question depends on a variety of factors and your individual risk appetite. General Electric (GE) has been described as a "gutted husk of a company" that is driven by short-term gains and is strapped by legacy costs. However, GE is still a force in its three main business sectors—aerospace, energy, and healthcare—and employs hundreds of thousands of people worldwide. The company is also investing significant amounts in U.S. manufacturing and has plans to form three public companies.
GE is currently undervalued and trading at a lower price than its intrinsic value. However, it is expected to deliver highly negative earnings growth in the next few years, indicating a high risk of future uncertainty.
There are several warning signs for GE that investors should be aware of before investing, including the company's history of poor management, decline in sales, and negative growth prospects.
GE has solid earnings and cash flow generators in its power and electrification segments, driven by gas turbine equipment services and the ongoing demand for connecting renewable energy sources to the grid. The company also has a strong focus on aerospace and defense and has been delivering robust growth in these sectors.
GE has been working through a backlog of less profitable legacy contracts and has been deploying lean manufacturing techniques to improve margins. Sales declined from 2018 to 2022, but profit improved dramatically during this period due to margin improvements.
GE is expected to see a massive jump in internal shop visits for its LEAP engines in 2024, which are used in the Boeing 737 MAX and Airbus A320 neo. GE Aerospace's orders are also in robust growth mode, with a 28% increase in the first nine months of 2023 compared to the previous year.
