Should You Pick General Electric Stock At $165?

General Electric (NYSE: GE) recently reported its Q1 results, with revenues and earnings beating the street estimates. The company reported adjusted revenue of $15.2 billion and adjusted earnings of $0.82 per share, compared to the consensus estimates of $15.1 billion and $0.65, respectively. The stock surged 8% in a day after the Q1 announcement. It is now up a stellar 60% this year. However, we think GE stock is now fully valued, and investors willing to enter will likely be well-off waiting for a dip for better long-term gains. In this note, we discuss General Electric’s stock performance, key takeaways from its recent results, and valuation.

Firstly, looking at its stock performance, GE stock has seen extremely strong gains of 200% from levels of $55 in early January 2021 to around $165 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 96% 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 RTX, 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 is appropriately priced. We estimate General Electric’s Valuation to be $161 per share, close to its current levels of $163.

General Electric’s revenue of $16.1 billion (GAAP) was up 11% y-o-y, driven by the Aerospace segment, with its sales rising 16%, while Power revenue was up 8%, and Renewable Energy, up 6%. General Electric has undergone a significant restructuring. It had split its healthcare business last year and separated its renewable energy and power business earlier this month.

The company saw its adjusted profit margin expand 300 bps y-o-y to 10.5% in Q1, vs. 7.5% in the year-ago period. Higher revenues and margin expansion resulted in solid earnings of $0.82 on a per-share and adjusted basis, reflecting a significant 3x rise from the $0.27 figure in the prior year period. Looking forward, the company expects its Aerospace sales to rise in low double-digits in 2024, and it expects adjusted earnings per share to be in the range of $3.80 and $4.05.

Overall, GE posted a solid Q1 and a strong demand outlook clubbed with improving margins should bode well for the company. However, we believe many of the positives are already priced in, with GE stock gaining roughly 60% year-to-date.

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 4/24/2024
[2] Cumulative total returns since the end of 2016

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