Is GE Stock Headed Toward $250 Levels?

GE Aerospace (NYSE: GE) has seen its stock rise by around 65% this year, outperforming the broader indices, with the S&P 500 up 18%. The stock now trades at 40x projected 2024 earnings of $4.13 per share. Does this make the stock expensive? We don’t think so, considering that GE Aerospace’s revenues could grow over 20% from $35 billion in 2023 (pro forma revenue) to around $42 billion by 2026, while earnings growth is expected to be over 2x for the same period, generating strong returns for shareholders. Here’s how this is possible.

GE has seen a stellar run lately, given the high demand for its aftermarket business for engine servicing and maintenance of aircraft. This trend is expected to continue, faring well for GE Aerospace. The company’s order inflows have also been trending well, with total orders of $11.2 billion in Q2’24, up 18% y-o-y. Furthermore, the company saw its adjusted profit margin expand 560 bps y-o-y to 23.1% in Q2, vs. 17.5% in the year-ago period. Even in Q1, the company saw its adjusted profit margin expand 300 bps y-o-y to 10.5%, vs. 7.5% in the year-ago period. This margin expansion has bolstered its stock price growth.

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 year. GE Aerospace is now focused on high-growth commercial, military, and general aviation. It expects its 2024 adjusted earnings to be in the range of $3.95 and $4.20, compared to $2.95 it reported in 2023.  The company will likely see strong earnings growth over 2023-2026, given the high demand for commercial aviation and the aftermarket. Furthermore, the company is also taking initiatives to enhance its shareholder returns, including regular dividends and share repurchases. The company repurchased 11.7 million shares and paid a dividend of $0.28 per share in Q2’24.

Considering our projections, $7.20 in adjusted EPS is likely possible by 2027, as compared to the $2.95 it reported in 2023. Now, if GE Aerospace’s earnings grow to $7.20, the forward P/E multiple will shrink to 24x in 2026 from its current level of 40x, assuming the stock price stays the same, correct? But that’s what GE’s investors are betting will not happen! If earnings expand over 2x in the next few years, instead of the P/E shrinking from around 40x presently (based on expected 2024 earnings) to about 24x, a scenario where the P/E metric falls more modestly, perhaps to about 35x, looks more likely. This would make growth in GE stock price be around 50%, to over $250 levels, likely over the next three years.

GE stock has seen stellar gains of 210% from levels of $55 in early January 2021 to around $170 now, vs. an increase of about 50% for the S&P 500 over this 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 heavyweights in the Industrials sector including PLUG, UBER, and CSX, 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.

While GE stock looks like it may see higher levels, 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 8/23/2024
[2] Cumulative total returns since the end of 2016

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