GE reported 23Q1 revenues of $14.5 billion, up 14.3% year-over-year; GAAP EPS from continuing operations of $5.61, compared with 22Q1’s $1.17 loss; and non-GAAP EPS of $0.27, reversing 22Q1’s $0.09 loss. I had anticipated a GAAP loss of $0.14 per share and non-GAAP EPS of $0.14.
The company recorded $6.1 billion of other income in the quarter, all of which was due to an unrealized gain on its 19.9% ownership position in GE Healthcare. Excluding that gain, I estimate that GE’s GAAP EPS was $0.06, still better than my expectations. The better-than-anticipated adjusted GAAP and non-GAAP results were due almost entirely to improving performance at GE Aerospace, which posted a 46.0% surge in segment profit to $1.33 billion on a 24.6% increase in revenues to $6.98 billion. Segment profit and loss at GE’s Power and Renewable Energy businesses was essentially flat.
Despite the strong 23Q1 performance, management raised only the low end of its 2023 non-GAAP EPS guidance range – by $0.10 to $1.70-$2.00. That incorporates the 23Q1 earnings beat, but it also implies little or no improvement in earnings expectations beyond the original guidance for the rest of the year.
Yet, GE’s stock has continued to outperform the broader market. Since my previous report (2/27), its total return is 21.7%, far outpacing the S&P 500’s 4.9%. With the stock now trading at 50 times projected 2023 non-GAAP earnings of $2.02, it is evident that the price anticipates the value that will be created in the spin-off of GE Vernova, which is scheduled for early 2024.
Based upon the better-than-anticipated results, I have raised my per share range estimate of GE’s break-up value from $85-$112 previously to $93-$123. The increase mostly reflects the paydown of debt from the application of proceeds of the GE Healthcare spin-off, a $1.8 billion reduction in capital contributions due to run-off insurance operations and the sale of $1.8 billion of its stake in AerCap Holdings (AER). The $108 midpoint of the new valuation range represents a potential return of about 7% from the current price of $101.70. Accordingly, I am reducing my performance rating to “3” (Neutral) from “1” (Strong BUY).
This is a summary of my latest update report on General Electric Company (GE). To obtain a copy of the full report, please reach out to me using the contact information provided below.
May 24, 2023
Stephen P. Percoco
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Linden, New Jersey 07036
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