GE announced 22Q4 revenues of $21.8 billion, up 7.3% year-over-year, GAAP EPS of $1.93, compared with 21Q4’s $3.26 loss, and non-GAAP EPS of $1.24, up 52% over 21Q4’s $0.82. I had anticipated a GAAP EPS of $0.38 per share and non-GAAP EPS of $1.26.
During the quarter, GE recorded $2.2 billion of other income, mostly as a result of a rebound in the value of its 46% equity stake in AerCap Holdings. Excluding that gain, GE’s GAAP profitability was below my expectations, with lower than projected segment profit from GE Aerospace offset by better than anticipated results at GE Healthcare, Renewable Energy and Power. Corporate costs were also greater than expected, due to higher restructuring and separation costs.
GE completed the spin-off of GE Healthcare Technologies (GEHC) on January 4. Excluding GEHC, the company’s guidance for 2023 anticipates organic revenue growth in the high single-digits, adjusted non-GAAP EPS of $1.60-$2.00 and free cash flow of $3.4-$4.2 billion. My projections are in line with that guidance, with revenue growth of 8.6%. adjusted EPS of $1.92 and free cash flow of $3.8 billion.
At its 2/24 closing price of $83.55, GE’s stock is valued at 84 times projected GAAP earnings of $0.99 and 43 times projected non-GAAP earnings of $1.92. That high valuation reflects the anticipated break-up values for GE Vernova (which comprises GE’s Renewable Energy and Power businesses) and GE Aerospace. My sum-of-the parts analysis for GE (including each of its business segments plus GE’s investments in AerCap Holdings, N.V. (AER) and GE Healthcare (GEHC) and its remaining required capital contribution to its run-off insurance operations) suggests a potential value range of $85-$112 per share, when the spin-off of GE Vernova is completed in early 2024. At $99, which is the midpoint of the range, the potential return, including GE’s $0.32 annual dividend, is 18.4%. Accordingly, I am raising my performance rating on GE’s stock from “3” (Neutral) to “1” (Strong Buy). The price target assumes that all three of GE’s businesses will achieve improved performance this year, consistent with my projections and GE’s guidance.
This is a summary of my recent update report on General Electric Company (GE). To obtain a copy of the full report, reach out to me using the contact information provided below.
March 8, 2023
Stephen P. Percoco
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Linden, New Jersey 07036
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