GE Offers Long-Term Growth Outlook For Aerospace Pure-Play

General Electric (GE) reaffirmed 2023 financial guidance early Thursday while offering its first long-term growth outlook for its aviation business. GE stock slipped near a buy point in early Thursday trade.

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During an investor conference Thursday, GE maintained 2023 guidance for revenue growth in the high single digits, adjusted EPS of $1.60-$2, and free cash flow (FCF) of $3.4 billion-$4.2 billion. The company also backed 2023 revenue growth, profit and FCF outlooks for its high-growth aviation, power and struggling renewable energy segments.

Simultaneously, management introduced long-term outlooks for GE Aerospace and GE Vernova (housing the power and renewables units), without specifying the term.

For GE Aerospace, it expects revenue growth in the mid-to-high single digits for aerospace unit and continued margin expansion, with free cash flow in line with net income.

For GE Vernova, it expects growth in the mid single digits and profit margin in the high single digits.

The storied conglomerate intends to spin off its power and renewables businesses as GE Vernova in early 2024. That will allow its higher-growth aerospace business to trade as an aviation and defense pure-play company.

In early January, the company spun off its health care business as a separate, independent company, called GE HealthCare Technologies (GEHC).

GE Stock, GEHC Stock

Shares of General Electric eased 0.2% to 86.79 in premarket action on the stock market today. GE stock rallied into the investor event, pegging a 52-week high Monday. GEHC stock rose 0.3% to 76.88 early Thursday.

GE stock has climbed more than 80% off a September low. In late January, GE stock topped an 81.28 buy point from a deep cup-with-handle base, the MarketSmith chart shows. Bases more than 33% deep tend to carry added risk. GE’s cup is 48% deep.

GE shares are now extended, meaning they are not in buy range. There’s also an alternative handle entry at 84.13.

The relative strength line for GE stock has risen to highs within a longer-term downtrend.

GE Outlook

Ahead of Thursday’s investor event,  RBC Capital Markets analyst Deane Dray wrote that he expects updates on “the Vernova separation, progress on getting renewables to break even in 2024, and the ramp in commercial engine deliveries and services, as well as military.”

“We expect discussions on the potential boost to onshore wind from the Inflation Reduction Act,” he added.

In January, GE offered a 2023 outlook. At Thursday’s event, Dray expects the company “to dive deeper into the business-level specifics to drive high-single-digit organic revenue growth and free cash flow (FCF) of $3.4-$4.2 billion.”

The conference runs from 7:30—11:30 a.m. ET.

For GE Aviation, Dray sees a likely focus on the more than 50% increase in Leap engine deliveries expected in 2023. A GE joint venture supplies the narrow-body Boeing (BA) 737 Max jet with Leap engines. Analysts also expect a return to pre-Covid flight departures on widebodies, popular in long-haul, international travel.

Free cash flow (FCF) remains the key operating metric.

RBC’s Dray expects discussion of the “bridge” to the 2023 FCF goal of $3.4-$4.2 billion. “The guidance midpoint for FCF growth assumes roughly $1.3 billion of improvement in earnings before interest and taxes (EBIT),” he wrote.

The RBC analyst says GE shares have been “released from deal purgatory” but he still sees upside from a valuation perspective.

Year to date, GE stock is up more than 33% vs. a roughly 6% gain for the S&P 500.

GEHC stock is also up about 27% in 2023 so far.

In late 2021, General Electric announced a once-unthinkable breakup, outlining plans for three independent companies, focusing on health care, power and aviation.

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