GE reported 23Q3 revenues of $17.3 billion, up 19.9% year-over-year; GAAP EPS from continuing operations of $0.08, compared with 22Q3’s $0.29 loss; and non-GAAP EPS of $0.82 vs 22Q3’s ($0.17). I had anticipated revenues of $15.4 billion, GAAP EPS of $0.49 and non-GAAP EPS of $0.60.
Aerospace’s strong sales and profit rebound continued in the quarter, with sales up 17.2% YOY and segment profit up 33.3%. Renewable Energy sales were up 15.5% and its segment loss narrowed from $934 million (including unusual warranty charges of ~$500 million) to $317 million. Power’s revenues increased 12.6% to $4.0 billion and its segment profit rose 68.8% to $238 million. Segment profitability at Aerospace was significantly greater than I had expected, but Renewable Energy and Power’s profits were in line with my expectations. Corporate costs were much higher than expected, owing mostly to mark-to-market losses on GE’s investments in AerCap and GE HealthCare (which are not included in non-GAAP, adjusted EPS. That is the primary reason why GE’s GAAP diluted EPS were below my projections, but its non-GAAP adjusted EPS exceeded my expectations.
Based upon this much stronger-than-anticipated adjusted EPS, the company raised its full year 2023 adjusted EPS guidance range from $2.10-$2.30 to $2.55-$2.65. Its revenue growth guidance of low teens was essentially unchanged. GE’s free cash flow came in slightly below my expectations, but management raised its full year 2023 free cash flow guidance by ~$0.6 billion to $4.7-$5.1 billion.
Based upon GE’s revised guidance, I now anticipate 2023 GAAP diluted EPS of $7.35, down $0.32 from my previous report, and adjusted non-GAAP earnings of $2.60, up $0.30.
With all the puts and takes, my range estimate of GE’s break-up value is little unchanged at $102-$127. My valuation range estimate for GE Vernova is down slightly, but my estimate for GE Aerospace has increased. At the $115 midpoint of the valuation range the potential return on GE’s stock price is about 3% above the current price of $111.20. Consequently, I am maintaining my performance rating of “3” (Neutral). GE’s stock has outperformed the market since my last report, declining 0.9% vs. the S&P 500’s 6.3% decline. The actual value of GE after the spin-off will of course depend upon market conditions in early 2024 as well as any further changes in its performance and outlook.
The Spin-Off of GE Vernova. My revised break-up valuation for GE is detailed in the tables below. Assumptions have been updated for current values as of October 25, 2023.
Since my last report (August 9), I have decreased my valuation estimate for GE Vernova by ~$0.6 billion, as a slightly higher valuation estimate for Renewable Energy is more than offset by a modestly lower estimate for Power. Renewable Energy is valued at 1.0-1.25 times revenue and Power at 12-14 times projected 2023 EBITDA. My valuation estimate for GE Aerospace is up $4.0 billion, due to improved profitability (above expectations). However, the equity value of GE’s investment in AerCap is down $3.2 billion, as GE sold part of its investment during the quarter and the value of its remaining stake is lower due to a decline in its share price. The value of the remaining stake in GE Healthcare is also down $0.6 billion due to its share price decline. GE’s equity value estimate has also improved by $1.0 billion due to a reduction in debt. All together, my valuation estimate for GE’s stock is now $102.16-$127.18, little changes from my previous estimate of $101.96-$126.27. At the midpoint, the valuation is $114.67.
This is a summary of my recent 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.
October 31, 2023 (Report published on October 25, 2023.)
Stephen P. Percoco
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Linden, New Jersey 07036
© 2015-2023 by Stephen P. Percoco, Lark Research. All rights reserved.
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