Up More Than 90% in a Year, Is GE Still a Value Stock?

 Up more than 90% for the year, is GE still a value stock?

General Electric (NYSE: GE ) doesn't attract the same attention it did during Jack Welch's heyday as CEO or Jeff Immelt's ill-fated tenure. But GE investors won't care, as the stock is up 91% over the past year as Larry Culp continues his impressive turnaround of the company. The question now is whether the great run is over or not.

What happened to General Electric

To answer that question, you need to go back to what has happened to the company and the stock over the past year. In fact, it's a combination of the market realizing the stock's appreciation opportunity, management's excellent execution, and the subsequent rise in prospects across all three of its sectors.

The value case for the stock was made last summer, but of course for a stock to prove "value" it needs growth, just as there is no point in buying a growth stock if there is no "value" in the stock. The good news is that GE has delivered on the growth front.

Headline management improvements

A year ago, its aerospace business was growing strongly but faced challenges in its supply chain, particularly as it expanded production of engines for commercial aircraft and in defense in general. The performance segment performed solidly. But the renewables business has disappointed investors, with GE, along with its partners Vestas and Siemens Gamesa (now part of Siemens Energy), lowering its outlook to 2022 due to a combination of soaring feedstock prices, supply chain issues and secured previous orders. for uncompetitive rates to be met.

Fast forward to the second quarter earnings report, and GE management raised expectations overall and at each of its businesses. As a reminder, GE Renewable Energy and GE Power will merge and be spun off as GE Vernova in early 2024.The table below shows the change in headlines over the year; changes are bold.

GE Aerospace

At GE Aerospace, the improving commercial aviation environment is well-documented as departures are making a strong comeback – great news for GE's aftermarket engine sales. Meanwhile, the company is overcoming supply chain issues and is on track to deliver 1,700 LEAP engines as ramp production to Boeing and Airbus.

There was even some good news on defense, a market that has been hit particularly hard by supply chain constraints. According to CEO Larry Culp, "Defense improved this quarter and delivered significant growth. Orders more than doubled. Engine performance increased more than 70% year-over-year" on the earnings call.Management now expects GE Aerospace to contribute $5.6 billion to $5.9 billion in operating profit in 2023, compared with a previous estimate of $5.3 billion to $5.7 billion.

GE Vernova (GE Power and GE Renewable Energy)

From GE's most troubled business, GE Power is now performing solidly, and while revenue fell 1% in the quarter, segment profit rose 18% thanks to strong growth in higher-margin services, an area GE management has focused on. improvement in recent years.

Finally, Culp expects GE Renewable Energy's revenue to grow by single digits, compared to its previous estimate for mid-digit growth. The segment is three interconnected businesses: onshore wind, offshore wind and grid. It's a story of a major improvement in onshore wind and the grid, offsetting ongoing offshore challenges as GE prepares the business for growth.

The main market for the onshore business is in the US, and GE is benefiting from increased orders as the Anti-Inflation Act spurs growth. Meanwhile, GE continues to improve its onshore wind orders in line with management's plans to be more selective about orders. The Grid received "two additional large HVDC [High Voltage Direct Current] projects" (along with two significant orders in the previous quarter), and Culp noted that "even without these projects, the Grid's orders are up more than 40%.Overall, onshore and grid strength has offset the negative impact of initial losses as GE builds its offshore business.

Stocks to buy

Despite the exceptionally strong move, there's still a reason GE stock is a good value. Aviation renewal is far from over and has a long way to grow as LEAP engines will be repaired in the future. The defense business may grow profits as supply chain constraints eventually ease. GE Vernova's outlook is improving, with management now expecting a loss of $400 million to $100 million, compared to a previous estimate of a loss of $600 million to $200 million.

Wall Street analysts expect free cash flow of $4.3 billion in 2023 and $6.3 billion in 2024, putting GE at less than 20 times free cash flow in 2024. That's a decent valuation and suggests that GE's strong stock price rally has some upside left.

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General Electric (GE), once a giant in the industrial sector, recently made headlines thanks to a remarkable share price increase of more than 90% in just one year. Investors and market analysts are eagerly watching the company's recovery, questioning whether GE remains a value stock despite its impressive earnings. In this article, we delve into GE's recent performance, assess its current position, and analyze whether it still holds promise for value investors.

General Electric's remarkable turnaround

Over the past year, General Electric has undergone a remarkable transformation, rebounding from its struggles and regaining investor confidence. A series of strategic divestitures, along with a focus on core business and cost-cutting measures, strengthened the company's financial position and profitability. As a result, the share price rose and attracted a new wave of investor interest.

A combination of internal improvements and external factors played  in boosting GE's stock price. These factors include:A. Streamlined Operations: General Electric's strategic efforts to streamline its operations and shed non-core assets have resulted in improved efficiency and higher profit margins, boosting investor confidence.

 Focus on renewable energy: As the world embraces sustainability and renewable energy sources, GE's focus on the renewable energy segment is a key factor in attracting environmentally conscious investors.

 Infrastructure Spending Boom: Rising global infrastructure spending, particularly in the transportation and aviation sectors, has created significant opportunities for GE businesses and contributed to the upward trajectory of its stock.

The question of value stocks

The rise in GE's stock price may raise concerns among value-oriented investors, who typically look for bargain-priced stocks. However, price appreciation should not be the sole determinant of whether GE is still a worthwhile stock. There are several other factors to consider: Intrinsic Value: Assessing GE's intrinsic value based on its financial performance, cash flows and future growth prospects is critical to determining whether the stock remains undervalued despite recent gains.

 Dividend Yield: For investors looking for income, GE's dividend yield is a critical aspect of evaluating its value proposition. A consistent and attractive dividend can add value even if the share price has risen.Competitive Position: An analysis of GE's competitive position within its industries and its ability to maintain a sustainable advantage will shed light on its long-term value potential.

General Electric's stock has seen an extraordinary rise of more than 90% in the past year, catching the attention of investors and analysts alike. While the rapid rise may raise concerns about its value, the question of whether GE will remain a value stock is more nuanced. By analyzing key factors such as intrinsic value, dividend yield and competitive position, investors can make informed decisions about a stock's potential for long-term value growth. As with any investment, careful research and evaluation is necessary to make prudent decisions in an ever-changing market.