Since reporting disappoint 22Q1 results on April 26, GE’s stock has fallen sharply. Year-to-date, GE’s stock is down 22.6%, worse than the S&P 500 Industrial sector’s 11.7% decline.
The disappointing results were due primarily to supply chain constraints that have delayed the delivery of certain products, especially from GE Healthcare. GE Aviation’s recovery in commercial engines is steady but slow. GE Renewable Energy has been hurt by the expiration of the U.S. Production Tax Credit. Costs are running high. Certain parts of GE’s businesses have also been affected by the war in Ukraine and COVID lockdowns in China.
Based upon the disappointing 22Q1 results, GE is now guiding to the low end of its adjusted EPS outlook of $2.80-$3.50. Even with this tempered outlook, achieving the guidance will require a rebound in earnings in the second half of the year. Despite its underperformance, the stock still trades at a meaningful premium to peers on forward earnings, which suggests that there is still downside risk if GE’s performance falls short of expectations.
GE has announced a break-up by spinning off 80% of GE Healthcare to shareholders in early 2023 and then combining GE Power and GE Renewable Energy and spinning that off to shareholders in 2024. Its single remaining business will be GE Aviation, which will also hold the remainder of GE Capital and other equity investments.
My analysis values the GE Healthcare spin-off at $29.45 per GE share and rest of GE at $60.50. Together, that represents a price target of $90 and a potential return of 23% from the current $72.97. Accordingly, I am establishing a strong buy rating on GE’s stock.
This is a brief summary of my recent update report on General Electric Company. For a copy of the report, please reach out to me at the telephone number or email address listed below.
May 10, 2022
Stephen P. Percoco
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Linden, New Jersey 07036
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