Source: PaxForex Premium Analytics Portal, Fundamental Insight
With a remarkable surge of nearly 60% in the past year, the question arises: Is it opportune for existing General Electric investors to secure profits, and should potential new investors consider steering clear of the stock? To formulate an informed answer, a close examination of the company's outlook in 2024 becomes imperative. Let's delve into the key aspects that might shape General Electric's trajectory in the upcoming year.
General Electric is poised for a transformative period in 2024, characterized by both change and execution. The impending spinoff of GE Vernova, encompassing GE Power and GE Renewable Energy in the second quarter, marks a significant change in the company's structure. Simultaneously, the execution aspect revolves around management's commitment to addressing backlogs at GE Aerospace, which will stand as the remaining entity as the General Electric name fades into the background. Additionally, there is a concerted effort to enhance profitability within both GE Vernova businesses.
For investors eyeing GE stock, the post-spinoff scenario promises exposure to both GE Vernova companies. The encouraging news is that ample room for improvement is anticipated in both entities throughout 2024.
In the realm of GE Aerospace, there is promising momentum in earnings and orders. The business boasts a multiyear backlog, and the defense segment is exhibiting positive signs of improvement. On the GE Vernova front, the management's successful track record in executing a strategic plan at GE Power is being replicated across GE Renewable Energy.
While the aerospace sector's recovery is expected to moderate in 2024 compared to the rapid growth witnessed in recent years, GE Aerospace remains optimistic. Specific guidance for 2024 has not been disclosed by management, but the business is poised to comfortably surpass the full-year 2023 guidance provided during the investor day presentation in March. The earlier projection estimated a profit range of $5.3 billion to $5.7 billion, which was subsequently revised upward to $6 billion in October due to a stronger-than-expected recovery.
Looking ahead, management's guidance for 2025 outlines a profit target ranging from $7.6 billion to $8 billion. Investors are eagerly awaiting 2024 guidance that acts as a bridge towards achieving these ambitious 2025 targets. Encouragingly, there are compelling reasons to believe in General Electric's ability to meet these figures.
2024 is anticipated to be a pivotal year for GE as it experiences a substantial increase in internal shop visits on its LEAP engines, the exclusive engine option for the Boeing 737 MAX, and one of two choices for the Airbus A320 neo. Furthermore, GE Aerospace's orders continue to exhibit robust growth, recording a remarkable 28% increase in the first nine months on a year-over-year basis.
The year has been particularly auspicious for LEAP engine orders, with 1,455 orders in the initial nine months alone. This figure closely aligns with the full-year order volumes of 1,515 and 1,457 achieved in 2021 and 2022, respectively.
As a testament to GE Aerospace's robust performance, the spare rate continues to exhibit exceptional growth, further substantiated by the alignment of shop visits with flight departures. In conclusion, the landscape appears promising for General Electric in 2024, offering investors a compelling narrative of growth and resilience in both GE Aerospace and GE Vernova businesses.
In essence, General Electric's management is strategically replicating the successful game plan implemented at GE Power for GE Renewable Energy, with GE Vernova CEO Scott Strazik, credited for the turnaround at GE Power, leading the charge.
GE Power navigated less profitable legacy contracts, implemented lean manufacturing techniques for margin enhancement, and transformed the margin profile in its order book. Despite a decline in sales from 2018 to 2022, the focus on margin improvement resulted in a substantial boost in profitability.
Following this blueprint, management is extending a comparable approach to address the challenges in the GE Renewable Energy business, which faced losses. Encouragingly, notable progress has already been made in the grid and onshore businesses, both posting profits in the third quarter and showcasing a significantly enhanced margin profile in the onshore wind backlog.
A notable development is the expanded role of Onshore Wind CEO Vic Abate, who will now oversee offshore operations. This move is aligned with CEO Larry Culp's announcement, highlighting a disciplined approach to new business development, akin to the successful strategies implemented in the Gas, Onshore, and Grid segments. This approach involves heightened scrutiny of pricing, terms, geographic exposure, and other risks.
With Strazik overseeing GE Vernova and Abate tasked with revitalizing the offshore wind segment, General Electric has strategically positioned key executives to spearhead the transformation in the renewable energy business.
While GE Aerospace enjoys favorable momentum and GE Power remains solidly profitable, the challenging area within GE Renewable Energy lies in its offshore wind business. A relatively new venture for GE, the offshore wind segment is being scaled up for growth, presenting its own set of challenges.
The anticipation is that Strazik and Abate, by replicating the successful strategies employed in the GE Power turnaround and the onshore wind and grid sectors, can effect positive change in GE Vernova, with significant improvements anticipated in 2024. In light of these strategic moves and the positive outlook, General Electric stands out as an attractive investment opportunity for investors.
As long as the price is above 124.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 130.98
- Take Profit 1: 134.00
- Take Profit 2: 138.00
Alternative scenario:
If the level of 124.00 is broken-down , follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 124.00
- Take Profit 1: 120.00
- Take Profit 2: 116.00
