GE Aerospace Is ‘Ready To Soar’ — Is GE Stock A Buy?

General Electric (GE) will emerge as an aviation and defense pure play in early 2024 after completing its big breakup. Is GE stock a buy after its huge rally?

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GE News

The company remains on track to spin off its energy business, as GE Vernova, in early 2024, management said at a March 9 investor event. That will allow the “new GE,” GE Aerospace, the company’s jet-engine business, to emerge as an aviation and defense pure play.

General Electric also gave upbeat long-term outlooks for both GE Aerospace and GE Vernova, including margin expansion for its jet-engine and aviation-systems unit after the looming breakup. That pushed GE stock to a 58-month high March 9.

Aerospace is “ready to soar,” RBC Capital Markets analyst Deane Dray wrote in a note to clients after the event, while noting the recovery in commercial air travel.

In early January, General Electric spun off its health care business, which now trades as GE HealthCare Technologies (GEHC). The storied conglomerate had announced its big breakup in late 2021.

In Q4, GE earnings jumped 73%, the industrial giant said Jan. 24. Strength in aviation and power was offset by weakness in GE’s renewable energy business.

Industrial companies are grappling with supply-chain issues and macro uncertainties. Other headwinds include the rapid rise in inflation and the Russia-Ukraine war.

GE Stock’s Huge Rally

Shares of General Electric jumped 6% to 91.56 March 9. GE stock pegged its highest level since May 2018 intraday. On March 10, shares added another 0.6%.

GE shares rallied for three straight weeks into the March 9 investor event. They are far extended from their breakout past an 81.28 buy point in late January, the MarketSmith chart shows. That means they are not in a proper buy range.

The relative strength line for GE stock has spiked to highs within a longer-term downtrend. A rising RS line means that a stock is outperforming the S&P 500. It is the blue line in the chart shown.

Year to date, GE stock is up more than 40% vs. a 2.1% gain for the S&P 500.

The industrial giant earns an IBD Composite Rating of 84 out of 99, according to the IBD Stock Checkup tool. The rating combines key technical and fundamental metrics in a single score.

General Electric owns an RS Rating of 97, meaning it has outperformed 97% of all stocks in IBD’s database over the past year.

GE remains a popular stock on Wall Street. As of December, 1,810 funds owned shares.

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GE Earnings

On key earnings and sales metrics, GE stock earns an EPS Rating of 46 out of a best-possible 99, and an SMR Rating of C, on a scale of A (best) to E (worst). The EPS Rating compares a company’s earnings per share growth to all other companies. The SMR Rating reflects sales growth, profit margins and return on equity.

GE earnings for the fourth quarter were led by its aviation business. Its onshore wind business continued to be a drag on earnings.

Analysts on Wall Street expect GE earnings and revenue to decline in 2023, before rebounding in 2024.

Free cash flow is closely watched as a sign of the health of GE’s operations. It plunged in 2020, rebounded  in 2021, and fell in 2022, FactSet shows.

Out of 22 analysts on Wall Street, 15 rate GE stock a buy. Seven have a hold and no one has a sell.

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GE Aviation

Aviation — sometimes called GE’s “crown jewel” — makes jet engines and aviation systems for plane makers including Boeing (BA). GE Aviation also runs a lucrative aftermarket business for engine repair and maintenance.

During the pandemic, travel restrictions to halt the spread of Covid-19 negatively affected aircraft deliveries and orders.

Aerospace suppliers also struggled to deliver parts and equipment on time, due to pandemic-fueled shortages of semiconductor chips and plastics. Costs of aluminum and steel also rose.

For GE Aviation, many of those headwinds are easing.

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Rivals To General Electric

Rivals to General Electric include Raytheon Technologies (RTX) and Siemens‘ (SIEGY) Energy unit.

Raytheon and Rolls-Royce of Britain are major jet-engine rivals. Siemens Energy competes with GE in power.

Other industrial peers include 3M (MMM), Honeywell (HON) and Roper Technologies (ROP).

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Is GE Stock A Buy Now?

General Electric’s poised for a huge transformation, shedding its diversified past to emerge as an aviation-focused company.

However, recession fears are growing, as rate hikes to control inflation weigh on global economies. The Russia-Ukraine war adds to business uncertainty.

For a cyclical industrial giant like General Electric, these are challenging headwinds.

From a technical perspective, GE stock notched a multi-year high on March 9 after management gave a strong outlook for the critical aviation business. But they are far extended from an 81.28 buy point off a deep cup-with-handle base.

Bottom line: GE stock is not a buy.

Over the long term, buying an index fund, such as SPDR S&P 500 (SPY), would have delivered safer, higher returns than GE stock. If you want to invest in a large-cap stock, IBD offers several strong ideas here.

To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD content.

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