What’s Next For General Electric Stock After 70% Gains In A Year?

General Electric (NYSE: GE) reported its Q4 results last month, with revenues and earnings beating the street estimates. GE stock has seen a robust 11% rise this year, but we think it is now appropriately priced, and investors willing to enter will likely be well off waiting for a dip for better long-term gains. The company reported adjusted revenue of $18.5 billion and an adjusted profit of $1.03 per share compared to the consensus estimates of $17.4 billion and $0.91, respectively. In this note, we discuss General Electric’s stock performance, key takeaways from its recent results, and valuation.

GE stock has seen extremely strong gains of 115% from levels of $65 in early January 2021 to around $140 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. However, the increase in GE stock has been far from consistent. Returns for the stock were 10% in 2021, -11% in 2022, and 95% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that GE underperformed the S&P in 2021.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Industrials sector, including CAT, UNP, and UBER, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GE face a similar situation as it did in 2021 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, GE stock looks like it has little room for growth. We estimate General Electric’s Valuation to be $143 per share, close to its current levels of $140. At its current levels, GE stock is trading at 28x expected earnings of $4.90 on a per share and adjusted basis in 2024, compared to the 25x average value over the last two years.

General Electric’s revenue of $19.4 billion (GAAP) was up 15% y-o-y, driven by the Renewable Energy segment, with its sales rising 23%, while Power revenue was up 15%, and Aerospace, up 12%. General Electric is undergoing a significant restructuring. It has already split its healthcare business last year and plans to separate its renewable energy and power business into a separate entity – GE Vernova – later this year. The company saw its adjusted profit margin expand 110 bps y-o-y to 9.6% in Q4, vs. 8.5% in the year-ago period. Higher revenues and margin expansion resulted in solid earnings of $1.03 on a per-share and adjusted basis, reflecting a solid 56% rise from the $0.66 figure in the prior year period. Looking forward, the company expects its Aerospace sales to rise in low double-digits and GE Vernova sales to be around $35 billion in 2024.

General Electric has been focused on reducing its debt. Its current debt of around $23 billion compares with a significant $94 billion figure in 2019. The company has sold several of its assets to reduce its debt. Although a strong demand outlook clubbed with improving margins should bode well for the company, we believe many of the positives are already priced in, with GE stock gaining roughly 70% in the last twelve months.

While GE stock looks like it is appropriately priced, it is helpful to see how General Electric’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 2/12/2024
[2] Cumulative total returns since the end of 2016

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