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General Electric: A Transformative Phase


General Electric (GE) is on the brink of reporting a highly significant earnings report, marking a major milestone in its 130-year history as an American industrial powerhouse.

The forthcoming figures on Tuesday may be the last consolidated earnings report that investors receive from the company, as GE undergoes a profound transformation. In early 2023, GE Healthcare Technologies was spun off, and in April of the second quarter, GE Vernova, the power generation-related businesses, will follow suit. Consequently, after the spinoff, GE Aerospace will be the only remaining entity under GE’s umbrella.

Given the uncertain timing of GE Vernova’s spinoff, it is likely that there won’t be another GE-only earnings report again. Instead, GE Aerospace, GE Vernova, and GE Healthcare will all report their earnings separately.

Owing to these ongoing changes and the intricate timing, providing guidance for 2024 – which will most probably be shared on Tuesday morning alongside the fourth-quarter figures – might prove more challenging to convey and comprehend. Investors need to be prepared to engage in some calculations.

GE might present several different outlooks. For instance, management could offer first-quarter guidance for either the consolidated company or both GE Vernova and GE Aerospace. Alternatively, they may provide a full-year forecast for both companies or something in between.

Another possibility is that management might advise investors to wait until early March when GE Aerospace and GE Vernova host investor days ahead of their spinoff and launch, thereby deferring specific guidance.

Nevertheless, it is highly likely that GE officials will offer some sort of forecast. However, fully comprehending this forecast might require additional effort.

Currently, Wall Street analysts model the company in its current state, considering the aerospace and energy divisions together. Analysts project an estimated 2024 earnings per share of approximately $4.59 and expect free cash flow of $6.3 billion from $70 billion in sales.

General Electric (GE) Quarterly Expectations

For the fourth quarter, analysts predict that General Electric (GE) will achieve an earnings per share (EPS) of approximately 90 cents, along with sales amounting to $17.2 billion. Comparatively, GE’s performance in the previous year showcased an EPS of $1.24 and sales of $21 billion. It is important to note that these figures still encompass the results from GE Healthcare Technologies, which was spun off at the start of 2023.

Full-Year Outlook for GE

GE is expected to report a full-year EPS of $2.67 for 2023. Initially, management projected an EPS of around $1.80 at the beginning of the year. However, by October, this guidance had increased to $2.60.

Jefferies Analyst Anticipates a Strong Quarter

Analyst Sheila Kahyaoglu from Jefferies anticipates a “beat and raise” type quarter for GE. For the aerospace division, she expects to witness another year of profit margin expansion, with operating profit reaching approximately $7 billion – a $1 billion increase compared to the previous year. Additionally, Kahyaoglu suggests that Vernova, GE’s subsidiary, may set its operating profit guidance at “$1 billion with the potential to accelerate based on the turnaround.”

Challenges Faced by Vernova

Vernova’s profitability has been hindered by its money-losing wind power division, which GE has been diligently working to reverse for several years. It is worth noting that wind turbine manufacturers have generally struggled to generate significant profits due to factors such as inflation, extended lead times, and evolving regulatory landscapes.

Analyst Ratings and Price Target

Sheila Kahyaoglu rates GE shares as a Buy and sets a price target of $150. Among all analysts covering GE, approximately 63% also hold a Buy rating. In comparison, the average Buy-rating ratio for stocks in the S&P 500 stands at approximately 55%. Furthermore, the average analyst price target for GE shares is $144.

GE’s Performance in the Market

As of midday trading on Monday, GE shares have experienced a remarkable 64% increase over the past 12 months. In contrast, the S&P 500 and Nasdaq Composite have risen by 21% and 36%, respectively.

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