Source: PaxForex Premium Analytics Portal, Fundamental Insight
General Electric has continued to make progress, with its stock rising by an impressive 49% in 2023. While management has raised the low end of its guidance range after a good quarter, the real story lies in the details of the earnings report. With the company set to split into two separate entities early next year, it is essential that both the power and renewable energy businesses are in good shape. Fortunately, the evidence from the first quarter suggests that all three businesses are making excellent progress toward their medium-term goals.
Looking at the first quarter results, GE reported a 17% organic year-over-year revenue growth. Additionally, the company's free cash flow (FCF) of $102 million is the first positive first quarter of FCF since 2015. Management has raised the low end of its full-year earnings-per-share guidance and full-year FCF guidance, signaling confidence in the company's trajectory. Orders increased by 26% in the first quarter, with GE Aerospace and GE Renewable Energy driving much of the growth.
The strong performance of GE Aerospace and GE Renewable Energy is particularly noteworthy. GE Aerospace is the company's strongest business, and its performance bodes well for the successful spinoff of GE Vernova. Meanwhile, GE Renewable Energy's orders grew a massive 94% in the first quarter, driven by large orders in grid solutions and increased onshore wind demand. With a renewed focus on profitability and pricing discipline, the business is expected to return to profitability and contribute to GE Vernova's success. Overall, these positive developments make GE an attractive stock for investors.
GE Aerospace's performance in the first quarter of the year is impressive, with 25% revenue growth and a strong margin of 19%, leading to a 46% increase in operating profit to $1.3 billion. Two things stand out about the segment's performance. Firstly, GE Aerospace's spare parts rate, a crucial indicator of the trend in its business, is growing strongly on a year-over-year basis. This is the first time it has surpassed the level of the same quarter in 2019, before the pandemic. This suggests that as commercial flight departures recover, aircraft will require servicing, leading to robust growth in services revenue. Secondly, GE is making good progress on its target of ramping up LEAP engine deliveries by 50% to 1,700 in 2023. Since both Airbus and Boeing are looking to aggressively ramp up aircraft production, it's essential for GE to increase its deliveries. LEAP engine sales were up 53% to 366 in the first quarter, indicating that GE is overcoming the supply chain issues that have been affecting the aerospace sector.
GE Renewable Energy's recovery is boosting GE Vernova's earnings, and it's a significant factor in the upcoming split of General Electric into two companies. In the first quarter, the renewable energy business reported a staggering 94% increase in orders, thanks to two large orders in grid solutions. Furthermore, the CEO Larry Culp noted that onshore wind "equipment orders also increased with North America growing more than threefold." With GE focusing on its most profitable markets, practicing greater pricing discipline in the industry, and the improving onshore wind demand environment, the business is expected to return to profitability, and Culp reaffirmed the target of achieving that by 2024.
With GE Aerospace's impressive revenue growth of 25% and margin performance of 19%, coupled with its rising spare parts rate and good progress on ramping LEAP engine deliveries, it is undoubtedly GE's strongest business. The ongoing growth at GE Aerospace and the recovery at GE Renewable Energy, supported by the solid earnings and cash flow of GE Power, are expected to enable a successful spinoff of GE Vernova in early 2024. Therefore, General Electric remains an attractive stock for investors.
As long as the price is above 97.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 101.62
- Take Profit 1: 105.00
- Take Profit 2: 110.00
Alternative scenario:
If the level of 97.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 97.00
- Take Profit 1: 93.00
- Take Profit 2: 90.00
