Will GE Stock Continue Its Rally?

General Electric stock (NYSE: GE) has had a solid run, rising more than 2x in the last twelve months from levels of about $90 per share in September 2023 to $190 now, led by its solid business fundamentals and its steady growth in Aerospace revenues. There is a high probability that this run is unlikely to lose steam anytime soon for it is backed by solid business performance. Investors have shown confidence in its business restructuring efforts and strategic initiatives that have the potential to push the company on the path of sustained profitability in its core industrial segments.

Has the peak been reached?

As Trefis estimates for GE valuation indicate, at current price levels, the stock looks fairly valued. However, the intriguing question is: Is there a potential upside scenario from this base level?

We believe that with the right tailwind, there is a possibility that the stock can rally another 2x in the next couple of years. Sounds optimistic? Not really! Consider the fact that the company’s net income registered a turnaround in fiscal 2023 growing by ~45% following years of restructuring. Trefis expects this momentum to continue and the company’s earnings have the potential to grow by more than 40% annually in the next few years.  We outline a path for the stock to rise to levels of almost $400 per share in the next several years by looking at the company’s potential revenue growth, net margins, and its price-to-earnings multiple on the back of a strong revenue outlook.

Does GE stock look attractive now?

Overall, the performance of GE stock with respect to the index has been quite volatile. Returns for the stock were 10% in 2021, -11% in 2022, and 94% 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. 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 around rate cuts and the uncertain geopolitical environment, could GE  stock underperform the S&P over the next 12 months — or will it see a strong jump?

Revenue growth coupled with margin expansion is the key

Consistent revenue growth, coupled with improved margins can increase GE’s net earnings by ~40% over the next few years. This would imply that earnings can also grow by 2x over the next few years. Now if earnings grow 2x, the P/E multiple will shrink to one-half of its current level, assuming the stock price stays the same. But that’s exactly what GE investors are betting will not happen! If earnings expand 2x over the next couple of years, instead of the P/E shrinking from around 45x presently to ~22x, we think that the multiple could stand at the current level of ~45x.  This could make a 2x rise in GE stock a real possibility – with the stock rising to levels of about $380. 

While GE stock doubling over the next couple of years looks like a very real possibility, can the timeline be as low as the next twelve months? In practice, it won’t make much difference whether it takes a year or two – as long as GE is on this revenue and earnings expansion trajectory with margins trending up, the stock price could respond similarly.

[1] Returns as of 10/01/2024
[2] Cumulative total returns since the end of 2016

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