[Updated: 11/11/2021] GE Stock Update
The stock price of General Electric is up 4.3% in a week, while it’s up 7% over the last month. The recent rise can be attributed to the company’s announcement of splitting into three different companies focused on Aviation, Healthcare, and Energy. The Healthcare business is expected to split in 2023 and Energy in 2024, leaving the Aviation business with GE.  Note that all three businesses have meaningful size with sales of $22 billion for Aviation, $18 billion for Healthcare, and Renewable Energy & Power sales of $33 billion in 2020.
This move has largely been seen as a positive for the company, unlocking more value for shareholders. GE stock has been weighed down over the recent years due to its high levels of debt. Although the company is sitting on a large debt of around $63 billion (compares with $110 billion in 2018), it is expected to repay a sizable portion with the proceeds from the sale of its GE Capital Aviation Services unit to AerCap in a $30 billion deal (cash proceeds of $23 billion). GE closed this deal on Nov 1, 2021.
Late last month GE reported its Q3 results with sales of $18.4 billion, well below our forecast of $19.4 billion, partly due to supply shortages. However, the earnings of $0.57 on a per share and adjusted basis was comfortably above our estimate of $0.52, driven by improved margins for the Aviation business, a trend expected to continue in the near term. The company also revised its full-year 2021 outlook with revenue now expected to be flat y-o-y, compared to earlier guidance of a low-single-digit growth. The company narrowed and raised its earnings outlook to be in the range of $1.80 to $2.10 per share, compared to its prior guidance of $1.20 to $2.00. Overall, all three – Q3 earnings, debt reduction, and split announcement – are widely seen as positive for GE stock.
Now, is GE stock poised to see higher levels or is a fall imminent? Based on our machine learning analysis of trends in the stock price over the last ten years, there is a higher chance of a rise in GE stock in the near term. See our analysis on General Electric Stock Return for more details.
5D: GE 4.3%, vs. S&P500 1.2%; Outperformed market
(12% likelihood event; 52% probability of rise over next 5 days)
- General Electric stock rose 4.3% over the last five trading days (one week), compared to broader market (S&P500) rise of 1.2%
- A change of 4.3% or more over five trading days (one week) is a 12% likelihood event, which has occurred 299 times out of 2516 in the last 10 years
- Of these 299 instances, the stock has seen a positive movement over the next five trading days on 156 occasions
- This points to a 52% probability for the stock rising over the next five trading days
10D: GE 3.6%, vs. S&P500 2.5%; Outperformed market
(19% likelihood event; 51% probability of rise over next 10 days)
- General Electric stock rose 3.6% over the last ten trading days (two weeks), compared to broader market (S&P500) rise of 2.5%
- A change of 3.6% or more over ten trading days is a 19% likelihood event, which has occurred 485 times out of 2516 in the last 10 years
- Of these 485 instances, the stock has seen a positive movement over the next ten trading days on 245 occasions
- This points to a 51% probability for the stock rising over the next ten trading days
21D: GE 6.9%, vs. S&P500 7.5%; Underperformed market
(16% likelihood event; 56% probability of rise over next 21 days)
- General Electric stock rose 6.9% the last twenty-one trading days (one month), compared to broader market (S&P500) rise of 7.5%
- A change of 6.9% or more over twenty-one trading days is a 16% likelihood event, which has occurred 409 times out of 2516 in the last 10 years
- Of these 409 instances, the stock has seen a positive movement over the next twenty-one trading days on 231 occasions
- This points to a 56% probability for the stock rising over the next twenty-one trading days
While GE stock may continue to rise, it is helpful to see how its peers stack up. Check out General Electric Stock Comparison With Peers to see how GE stock compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
[Updated: 10/20/2021] GE Q3 Earnings Preview
General Electric is scheduled to report its Q3 2021 results on Tuesday, October 26. We expect the company to report revenues and earnings above the consensus estimates, driven by a rebound in the overall economic activity, as global Covid-19 vaccination rates continue to rise. We expect the company to navigate well based on the economic recovery over the latest quarter. Not only do we expect an earnings surprise, our forecast indicates that GE’s valuation is $117 per share, which is 11% above the current market price of $105, implying that the stock has more room for growth, in our view. Our interactive dashboard analysis on General Electric’s Pre-Earnings has additional details.
(1) Revenues expected to be above the consensus estimates
Trefis estimates GE’s Q3 2021 revenues to be around $19.4 billion, slightly above the $19.3 billion consensus estimate. While GE’s aviation business has been a drag on its revenue growth in the recent past, given the impact of the pandemic on the overall sector, the aviation sales are expected to rebound now with economies opening up gradually, and airplane manufacturers planning to increase production. In fact, aviation revenues were up 10% in Q2, and they are expected to trend higher in Q3 as well, but remain lower when compared to pre-pandemic levels.
The company’s healthcare business has seen a rise in demand of late, with a rebound in total procedures volume, a trend expected to continue going forward. Furthermore, the company’s recent acquisition of BK Medical strengthens the ultrasound portfolio of its healthcare business over the coming years.
Furthermore, the economic growth has picked up pace and GE’s other businesses, including Power and Renewable Energy, are expected to see strong revenue growth. Our dashboard on General Electric’s Revenues offers more details on the company’s segments.
2) EPS likely to be above the consensus estimates
GE’s Q3 2021 adjusted earnings per share is expected to be $0.52 per Trefis analysis, compared to $0.43 consensus estimate. GE’s adjusted net income of $0.4 billion in Q2 2021 was much better than a net loss of $1.2 billion in the prior-year quarter. This can be attributed to higher revenues as well as margin expansion. That said, the company cautioned about rising material costs, and this likely weighed on the overall earnings growth in Q3. Looking forward, as the company sees its sales rebound, especially the aviation segment, the margins are expected to rise. As such, for the full-year, we expect the adjusted EPS to be higher at $2.15 compared to $0.10 in 2020.
(3) Stock price estimate above the current market price
Going by our General Electric’s Valuation, with an EPS estimate of around $2.15 and a P/E multiple of around 54x in 2021, this translates into a price of $117, which is 11% above the current market price of around $105. Other than a Covid-19 recovery play, GE stock also stands to benefit from its focus on reducing its debt. GE’s current debt of around $75 billion compares with a large $110 billion figure seen in 2018. The company has sold several of its assets to reduce its debt, and it continues to be on that path. As such, we believe that GE stock has more room for growth in the near term.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
While GE stock may have more room to grow, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Honeywell vs Roper.
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