As a long-term oriented value investor, my ultimate goal in buying a stock is to buy it with the idea that, over a period of three to five years, that stock can generate attractive annualized returns well in excess ofthe broader market should. However, I will not let this put me in a box. If a company's stock goes up enough, I have no problem selling it. And with the recent movement seen by the industrial conglomerateEnergia General(NYSE:GE), I think now is the time to sell my stake and move on. Not make mistakes; I think the company has done some remarkable things over the years. It has recently dramatically outperformed the broader market. And I still think that's a strong enough outlook to warrant a 'Buy' rating. but I'm not here anymorehe believes it offers enough of an advantage to warrant the "strong buy" rating I gave the company last year. This assessment was based on my own view of the value of what remains within the company. My primary focus was in the aviation business under what management now calls GE Aerospace.
a great walk
However you do it, investors in General Electric are doing pretty well. since he walked awayGE HealthCare Technologies(GEHC) turned into a separate public company earlier this year, General Electric has seen almost nothing but positive things. Since that spin-off, shareholders have seen an increase of about 44%. Given this amazing track record, I felt it was time to take a step back and reevaluate the photo. After all, even the best odds have a limit. The way I did it was to see what value there would likely be to GE Aerospace as a whole if it and the rest of the company's business, currently called GE Vernova, were spun off early next year. When I first bought General Electric late last year, part of my investment thesis was that the healthcare subsidiary was worth significant capital compared to what the conglomerate as a whole was trading for. I went with that approach and wanted to see if by buying General Electric I could pay for GE Aerospace while getting GE Vernova for free or something like that.
Unfortunately, I think the answer to this is no. For those who may be new to the conglomerate, GE Aerospace is the division of General Electric that designs and manufactures engines for commercial and military aircraft, as well as related components and systems. It also provides services to its customers in the aviation space, such as maintenance and repair work. If you look at the big financial picture of this part of the business, you can see a pretty interesting track record. The time frame in question that I have decided to focus on is as of 2018.puertatoday. In 2018, the unit's revenue was $30.57 billion. This skyrocketed to $32.88 billion in 2019 and fell over the next two years to $21.31 billion in 2021.
This is not the type of trajectory you normally want to see. But there were good reasons for this decline. For starters, the COVID-19 pandemic brought air traffic to a virtual standstill. This resulted in fewer aircraft orders and fewer store visits. There were other factors, too, largely outside the control of the parent company. Most notable was the 737 MAX grounding debacle. Created byBoeing(licensed in letters), the 737 MAX aircraft experienced some significant problems that culminated in two fatal accidents and a subsequent global grounding of the aircraft for more than a year. Given that GE Aerospace is responsible for manufacturing the LEAP engine used by the 737 MAX, it's not surprising that the unit suffered materially as a result.
Although I did not own any shares in the company at the time, I remained optimistic about its potential and viewed these problems as temporary. Sure enough, the company finally experienced a rebound. Revenue reached $26.05 billion in 2022, while the order book soared from $303.4 billion the year before to $352.6 billion at the end of last year. And so far, this year's financial performance is even stronger. During thefirst quarterFor fiscal 2023, the unit's revenues were $6.98 billion. That's 24.6% more than the $5.6 billion generated a year earlier. Bottom line performance for GE Aerospace has followed a very similar trajectory in recent years. After a 2020 low of $1.23 billion, the segment's operating income rose to $4.78 billion last year.
For the current fiscal year, management expects unit revenue to grow at a rate in the mid- to mid-teens. For the valuation of the company I assumed that this meant 17.5%. This would translate to revenue of $30.61 billion. And management has said segment operating income would be between $5.3 and $5.7 billion, with a midpoint of $5.5 billion. This would translate into an operating profit margin of approximately 18%. For context, that number was 18.3% last year. And if you exclude the two weak years of 2020 and 2021, the number has fluctuated between a low of 18.3% and a high of 21.1% over the past five years.
Company Price / Sales Price / Operating Profit Honingwell International (REE) 3.55 20.39 Northrop Grumman (CON) 1.75 18:65 Raytheon Technologies (RTX) 1.94 25.73 Lockheed Martin (LMT) 1.74 13.68 general dynamics (GD) 1.40 13.78
When you consider that GE Vernova is expected to post negative segment earnings this year, it becomes clear that General Electric derives most of its value from its GE Aerospace business. While I couldn't find a pure competitor to compare it to, I did find companies that were structurally very similar. For these five companies, I calculated that they trade at a price-to-sales ratio between 1.40 and 3.55. For its part, its price/operating profit ratio varied between 13.68 and 25.73.
To see what upside potential is currently possible for General Electric shareholders, I decided to look at two different scenarios for both valuation metrics. The first was to assume that the lower end of these companies' reach would be worth it. The second, more aggressive scenario is to pick the most expensive of the bunch and then average the other four to find a suitable comparable multiple. Using the most conservative approach, I calculated that GE Aerospace should be worth between $42.85 billion and $75.24 billion. Meanwhile, with the more liberal approach, we get a range between $52.34 billion and $91.47 billion. Caution when it comes to relying on the high end of this range. This is because the difference between segment operating profit and competitors' actual operating income is that segment operating profit does not represent unallocated operating expenses. It would be prudent to reduce the top of these ranges by 10-15%. Anyway, General Electric as a whole is worth about $109.16 billion.
Company VE / Sale EV / Operating benefit honeywell international 3.88 22:35 Northrop Grumman 2.04 21.78 Raytheon Technologies 2.34 31.36 Lockheed Martin 1.94 14.92 general dynamics 1.60 15.74
It's important to note that at the end of the most recent quarter, General Electric is technically in a position where that's negative on a net basis. This means that the enterprise value of the company is approximately $107.94 billion. In the chart below, I decided to repeat this analysis, trading the company's market capitalization and trading the company's value. But as you can see, the numbers are not that different from what I calculated above.
Based on the data provided, I think General Electric continues to be a great prospect for long-term, value-oriented investors. That being said, I think it is trading much closer to fair value than it was at the beginning of this year. The market realized, with the spin-off of GE HealthCare Technologies, that the stock had been mispriced for some time. I would say this has been largely rectified. Of course, GE Vernova is probably worth enough to at least make up the difference between the value of General Electric as a whole and what I estimate GE Aerospace to be worth (at least if GE Aerospace is worth near the high end of the range). But to me, having an attractive margin of safety is incredibly important, and I feel like that has been eroded by the rise in the conglomerate's stock price. That's why I've decided to sell my position at General Electric. I am submitting this article for publication in the early morning of May 10. I don't know if it will be published before the market opens. But I will probably sell my shares sometime on the morning of May 10.
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What happens to my GE stock when the company splits? ›
GE will will split its business into three standalone companies. This will not result in a stock split. Instead, shareholders of GE will receive a certain number of shares in the newly created companies once the spin-off is completed.What caused the downfall of GE? ›
The 2008 financial crisis hit GE hard. The company's stock fell 42% during the year, and after Welch's departure, it became clear that GE was overstretched and bloated. Losses by the GE Capital financial segment nearly sank the company during the Great Recession.What is the prediction for GE stock? ›
Stock Price Forecast
The 17 analysts offering 12-month price forecasts for General Electric Co have a median target of 109.00, with a high estimate of 121.00 and a low estimate of 90.00. The median estimate represents a +4.79% increase from the last price of 104.02.
General Electric's analyst rating consensus is a Strong Buy. This is based on the ratings of 20 Wall Streets Analysts.What happens to my GE stock after the spinoff? ›
Your total number of GE shares will remain unchanged and you will receive 0.333333 shares of GEHC for each GE share held. This may lower the price of each GE share as a portion of GE's value will transfer to the new company's stock, GEHC.Is it smart to buy a stock after it splits? ›
Do stock splits benefit investors? – It's nice to own more shares after a split, since the reduced per-share price might mean there's room for greater potential price growth. But investors shouldn't buy a stock simply because they hope it'll rise in price after a split.Will GE ever recover? ›
Is GE Stock A Buy In October 2022? General Electric continues its long, ambitious turnaround. GE earnings are expected to grow in 2022 and 2023, as airlines and the broader economy continue to recover from the pandemic.Is GE going to rebound? ›
The SMR Rating reflects sales growth, profit margins and return on equity. Analysts on Wall Street expect GE earnings to decline 22% per share in 2023, before rebounding 95% in 2024, FactSet shows.
GE's Reverse Stock Split
Only one of GE's stock splits has been a reverse split—a 1-for-8 stock split in 2021. In this case, eight shares of GE stock were converted to one share. The move dropped the number of outstanding shares of GE common stock from about 8.8 billion to about 1.1 billion.
The consensus among 13 Wall Street analysts covering (NYSE: GE) stock is to Strong Buy GE stock.
What was GE highest stock price ever? ›
- The all-time high General Electric stock closing price was 256.29 on August 28, 2000.
- The General Electric 52-week high stock price is 105.78, which is 1.5% above the current share price.
General Electric has received a consensus rating of Buy. The company's average rating score is 2.86, and is based on 12 buy ratings, 2 hold ratings, and no sell ratings.Is GE too big to fail? ›
(Reuters) - General Electric Co.'s GE. N slimmed down financing arm shed its "too big to fail" designation on Wednesday, no longer deemed by the U.S. government "systemically important" and so liable to wreck the economy in the event it runs into distress.Who owns the most GE stock? ›
General Electric Co (NYSE:GE)
Institutional investors hold a majority ownership of GE through the 72.40% of the outstanding shares that they control. This interest is also higher than at almost any other company in the Aerospace & Defense industry.
According to our current GEHC stock forecast, the value of GE HealthCare Technologies Inc. shares will rise by 3.04% and reach $ 82.10 per share by May 24, 2023. According to our technical indicators, the current sentiment is Bullish while the Fear & Greed Index is showing 39 (Fear).How many shares do I get from a spinoff? ›
Shareholders of the parent company will normally receive shares of the spin-off company. The investor, generally, will receive one share of the spin-off for a pre-determined amount of shares of the parent company that the investor holds.What does GE spinoff mean for shareholders? ›
In this spin-off, GE distributed to its stockholders approximately 80.1% of the outstanding shares of GE HealthCare common stock. Holders of GE common stock received one share of GE HealthCare common stock for every three shares of GE common stock held as of the close of business on the record date, December 16, 2022.Can I sell my GE stock? ›
You can only sell your VSA shares via the GE Employee Share Plan website. Shares will be sold on the New York Stock Exchange and can be sold at any time during trading hours.Do you make more money before or after a stock split? ›
The split may elicit additional interest in the company's stock, but fundamentally investors are no better or worse off than before, since the market value of their holdings stays the same.Do stock prices usually go down after a split? ›
A stock's price is also affected by a stock split. After a split, the stock price will be reduced (because the number of shares outstanding has increased). In the example of a 2-for-1 split, the share price will be halved.
How long does it take for stocks to go up after a split? ›
A company announcing a split usually sets an effective date of 10–30 days after the announcement. All shareholders who own the stock the trading day before the ex-date will take part in the split. The shares might take another few days to settle.What happens to your stock shares if the companies stock splits? ›
When a company splits its shares, the value of the shares also splits. For example, suppose the shares of XYZ Corp. were trading at $20 at the time of the two-for-one split; after the split, the number of shares doubles, and the shares trade at $10 instead of $20.What does GE stock split mean? ›
If the company opts for a 2-for-1 stock split, the company would grant you an additional share, but each share would be valued at half the amount of the original. Currently, it is anticipated that GE shareholders are likely to receive shares of the new energy and healthcare companies as dividends when they spin off.How many shares of GE HealthCare will I get? ›
Holders of GE common stock will be entitled to receive one share of GE HealthCare common stock for every three shares of GE common stock held on December 16, 2022, the record date for the distribution.What was GE stock price after reverse split? ›
GE announced that it would proceed with the eight-to-one split in June. Shares of GE closed at $12.95 on the New York Stock Exchange on Friday.