General Electric's incredible run isn't over yet.
The industrial powerhouse's end markets keep improving
Lee Samaha (General Electric): The industrial stock is up over 55% in 2023 but still has room to run. The reasoning behind this argument is that all three of its end markets continue to improve.
GE is a much smaller company now than in Jack Welch's heydays and Jeff Immelt's dog days. Following the healthcare spinoff early this year, GE is now focused on aerospace (mainly commercial with some defense exposure), power (especially gas turbines and services), and renewable energy (wind power and grid solutions).
In aerospace, GE continues to enjoy the benefits of the recovery in commercial aerospace and a gradually improving supply chain. GE Aerospace grew orders by 14% in the first quarter, and its joint venture with Safran, CFM International, is on track to ramp production of its LEAP engines by 50% in 2023. While the LEAP comes with a negative engine margin, it generates highly lucrative aftermarket revenue spread over decades as the engines are used.
In addition, GE Aerospace may have an opportunity to take market share on the Airbus A320 neo family of aircraft as its competitor on the airplane, Raytheon Technologies' geared turbofan engine (GTF), has disappointed some airlines with durability issues in harsh environments.
GE Power is heading for another solid year, with management forecasting low single-digit revenue growth and "slightly better" operating profit than 2022. However, given that natural gas price has fallen by 74% over the last year and 33% this year, it's likely that gas turbines usage will increase, leading to more services revenue and a possible increase in investment in gas turbines.
Finally, the infrastructure bill is unleashing pent-up demand in GE's core market, U.S. onshore. As such, GE Renewable Energy orders rose 94% in the first quarter to $5.4 billion, driven by onshore wind and two large grid solutions orders to connect renewable energy sources to the grid.
Given the strengthening momentum in its end markets, there's plenty of reason to believe the industrial company could exceed its earnings guidance.
