GE Stock Sets A High during it’s blast off to GE Aerospace — Is It A Buy?

General Electric (GE) is on the verge of a significant reshaping as it transitions towards becoming a dedicated aerospace and defense enterprise, leaving behind its varied past. As investors eagerly anticipate the rise of GE Aerospace, is it time to invest in GE stocks?

In the lead up to its final separation, GE carried out a series of events in March, providing comprehensive insights into the companies succeeding the split—GE Aerospace and GE Vernova.

On April 2, the reimagined GE, christened as GE Aerospace, will step out as an independent entity, keeping its GE stock ticker.

Vernova, the hub for wind energy and gas power operations, will kick start its journey on the same day, trading under the ticker symbol GEV.

GE’s healthcare subsidiary, GE HealthCare Technologies (GEHC), commenced its journey in the previous January.

The American manufacturing colossus, deeply troubled in 2021, declared a trifurcation into independent, publicly listed energy, healthcare, and aviation corporations.

Prior to this, the company let go of various assets, ranging from locomotives to lighting.

General Electric’s stocks are considerably broadened from a buying point of 132.50 off a three-weeks-tight pattern, indicating that the stocks are not within the purchasing range. Post an earlier, November breakout, the stock has witnessed a surge of 52% past a flat-base entry, as per MarketSurge pattern analysis.

GE stock hit a new 52-week high on Wednesday. The soon to be aerospace stock currently stands at its highest point since June 2017, shortly before signaling a separation due to financial calamities.

GE’s stock relative strength line is on an upward trend, with the RS line (represented by a blue line in IBD charts) tracking the stock’s progress against the S&P 500.

Since the beginning of the year, GE stock has ascended 40% and has skyrocketed over 92% in the previous year.

As per the IBD Stock Checkup tool, the industrial behemoth boasts an IBD Composite Rating of 95 out of a possible 99, a score that combines important technical and fundamental metrics.

General Electric holds an RS Rating of 95, implying it has surpassed 95% of all stocks in IBD’s database over the past year.

On vital earnings and sales metrics, GE stock has an EPS Rating of 74 out of a possible 99, and an SMR Rating of B on a scale from A (best) to E (worst).

In 2023, GE reported a dramatic rise of 264% in earnings as revenue increased by 17%, highlighted by a robust fourth quarter, as per the company’s 2023 Annual Report. The aerospace division was the main driver of results, with renewable energy and power also enhancing performance.

While Q4 earnings exceeded expectations, the company’s 2024 projections fell short.

Free cash flow (FCF), an important metric to watch, touched $5.2 billion in 2022 for General Electric, an increase of $2.1 billion.

Out of 19 Wall Street analysts, 13 recommend GE stock as a buy, as shown by FactSet. Six suggest holding and none advise selling.

GE’s ‘Crown Jewel’

GE’s aerospace division, often referred to as GE’s “crown jewel”, manufactures jet engines and aviation systems for aircraft manufacturers such as Boeing (BA) and the military. GE Aerospace also operates a profitable engine repair and maintenance aftermarket business.

During the pandemic, travel restrictions imposed to curb the spread of Covid-19 adversely impacted aircraft deliveries and orders.

Aerospace suppliers also faced difficulties in timely delivery of parts and equipment due to shortages of plastic and semiconductor chips fueled by the pandemic. The cost of steel and aluminum also rose.

However, many of these challenges have eased for GE Aerospace.

The company stands to gain from the revival of commercial air travel post-pandemic, as well as increasing defense orders.

Moreover, the Boeing 737 Max crisis is causing airlines to prolong the use of older planes, creating more demand for GE Aerospace’s services. Boeing witnessed a fall in orders in January and February, and its CEO is set to exit by the end of the year amid the ongoing Max issue.

In general, aerospace and airline companies face macroeconomic and geopolitical risks, including wars in the Middle East and Europe.

Key competitors to GE Aerospace include Raytheon Technologies (RTX) and Rolls-Royce in the jet-engine market, with Honeywell (HON) being a major competitor in aviation systems.

Should You Buy GE Stock?

General Electric stands on the cusp of a significant transformation, shifting from a renowned industrial conglomerate to a pure-play aviation enterprise. The soon-to-be-launched GE Aerospace continues to increase its jet-engine orders.

However, the aviation industry is subject to cyclical ups and downs. Global economic risks persist, and the breakout of major wars adds to business uncertainties.

For an industrial titan like General Electric, these pose considerable challenges.

From a technical perspective, GE is beyond the range for a secondary buying opportunity. Yet, shares continue to outshine, leading up to GE Aerospace’s public introduction on April 2.

In conclusion: GE stock is not a buy at this moment.

In the long run, investing in an index fund, such as SPDR S&P 500 (SPY), would have secured safer, higher returns than buying GE stock. However, shares have outperformed since mid-2022 as General Electric reinvigorated growth and began transitioning into an aerospace-centric company.