Where will General Electric’s stock be in 10 years? (NYSE: GE)

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Summary in seconds

I assign a Hold investment grade to General Electric Company (GE). GE describes itself as an “American multinational corporation” which is “a leader in the energy, renewable energy, aviation and health sectors” on its Company Website.

I don’t have a very favorable view of General Electric’s long-term 10-year outlook. I have doubts about the increase in value (i.e. reduction in the conglomerate discount) associated with the company’s split plans, and I am also concerned about GE’s ability to finance future growth initiatives for its Aviation activity on an autonomous basis.

On the flip side, GE shares don’t look expensive, with it trading below Wall Street analysts’ lowest target price. Additionally, a decrease in daily COVID-19 cases in the future could be a short-term catalyst for the stock.

As such, I decide to value GE stocks as Hold.

General Electric price target

General Electric shares have underperformed the S&P 500 by a significant margin over the past six months, but the selling analysts’ consensus price target seems to indicate there is a significant rise for GE at current price levels .

Over the past six months, the GE stock price has fallen -7.0%, while the S&P 500 has risen + 8.7% over the same period. Specifically, shares of General Electric have started to significantly underperform the S&P 500 since late November 2021, and this coincided with the World Health Organization. call “variant B.1.1.529 a worrying variant, named Omicron” and the increase in cases of COVID-19. General Electric Aviation’s core business segment was negatively impacted by the coronavirus pandemic in 2020, with revenue and operating income down by -34% and -72%, respectively. As such, it’s no surprise that the GE stock price has been weak with the recent spike in COVID-19 cases.

GE’s share price performance over the past six months

Source: In search of Alphas Map data for General Electric

New daily cases of COVID-19 around the world

Source: Worldometer

General Electric shares appear to be on the verge of a rebound, based on an analysis of price targets from analysts on the sell side of the stock. The average consensus target price for GE is $ 124.71, which is 25% higher than the company’s last share price of $ 99.95 as of Jan. 6, 2022. Additionally, it should be noted that even The more bearish Wall Street analysts who cover the stock believe there is a limited downside to current price levels for GE. The lowest price target for General Electric on the street is $ 100.00, which is roughly the level at which General Electric shares are currently trading.

The target price range for analysts covering General Electric

Source: In search of Alphas Wall St. Analyst Rating Data for GE

In addition, GE’s consensus price target increased + 5%, from $ 124.18 as of Nov 9, 2021 to $ 129.74 (the highest in three years) as of Nov 11, 2021, after disclosing ” plans to form three public companies “in accordance with its Press release published on November 9, 2021. General Electric’s spin-off plans are the most important factors affecting the potential future increase in the share price, which I discuss in the next section of this article.

Changes to General Electric’s consensus price target over the past six months

Source: In search of Alphas Wall St. Analyst Rating Data for GE

Should GE’s share increase?

The future performance of GE’s share price in the medium to long term will be strongly influenced by whether its plans to separate into three listed entities create value.

In short, General Electric aims to transform itself into “an aviation-focused company” by divesting its Health and Renewable Energy and Electricity businesses in 2023 and 2024 respectively, according to its press release of November 9, 2021.

A look at General Electric’s division plans announced on November 9, 2021

Source: General Electric December 2021 corporate presentation slides

I have a mixed opinion on GE’s split plans.

On the one hand, General Electric is currently suffering from a discount of the sum of the parties or a conglomerate as a single listed entity with several activities, so that the split of GE into three separately listed companies could potentially result in a positive revaluation of GE’s valuations going forward.

In addition, the Aviation, Healthcare and Renewable Energy and Power businesses are very different in many areas such as growth prospects, profitability, cash flow generation, asset intensity and capital requirements. As such, it makes sense to separate these businesses.

A quick overview of the key indicators of the various GE activities in 2020

Source: General Electric corporate presentation slides from December 2021

On the other hand, it is unclear to what extent the market is willing to award a narrower conglomerate discount to GE after the split. Although General Electric says it will become “an aviation-focused company” following the spin-offs in 2023 and 2024, it will retain interests in a number of non-aviation assets and businesses after the spin-off.

At the company call to investors On November 9, 2021, General Electric said the company would retain its “other GE assets and liabilities today, including our runoff insurance business.” He also added that he will still own “stakes in AerCap (AER) and Baker Hughes (BKR) as well as our stake in Healthcare, which we expect to reach close to 20%”.

Notably, General Electric stressed during the call in early November that the company’s interests in AER, BKR and the healthcare business are “something that we will also monetize over time as we take stock. of the three companies and position each of the three companies. be in the spotlight, able to invest in growth in the future. “This seems to indicate that it will take a lot longer than expected for GE to truly become a pure aviation game and further reduce its haircut evaluation of the sum of the parts.

It should also be noted that General Electric’s share price performance has been poor over the past two months, as highlighted in the previous section, despite the split plans which were first announced in early November 2021. This is in part due to the Omicron variant, and also could be in part due to skepticism regarding GE’s split plans.

Going forward, I believe the GE share price will rise in the near term as this new wave of COVID-19 cases subsides. But a substantial increase in General Electric’s share price may not be on the cards, as the company’s plans to split off may not increase its valuations significantly, as I explained earlier.

Where will General Electric’s stock be in 10 years?

The past 10 years have not been great for GE shareholders in terms of the company’s stock price performance relative to the S&P 500 according to the chart below, and there is no guarantee that the next decade will be significantly better.

GE Stock Price Performance Over the Past Decade

Source: In search of Alphas Map data for General Electric

Over the next decade, General Electric’s divided plans will be most important for the first five years (2022-2026). Over the past five years (2027-2031), all eyes will be on GE’s transition to a full-fledged aviation company.

In the first five years of the next decade, the key elements to watch will be the planned split by GE of the Healthcare business in 2023 and the Renewable Energy and Power business in 2024. We are at least one year away from this. Health activity, and it is impossible to exclude changes in plans.

Additionally, assuming both spinoffs are delayed due to capital market factors or internal considerations, the timing of potential divestitures (highlighted in the previous section) of GE’s stakes in its healthcare business , AER and BKR could also be pushed back.

Over the last five years of the next decade, assuming General Electric successfully completes the Healthcare and Renewable Energy and Power spin-offs, financing the future growth of the Aviation business will be the biggest challenge for GE. .

An analyst questioned the “funding stability” of the company’s longer-term Aviation business at General Electric. call to investors on Nov. 9, 2021, as he noted that “historically, GE has funded aviation from the rest of the business throughout the cycle.” In response to this question, General Electric did not provide a specific answer as to how the company’s Aviation business will fund its future growth. Instead, GE emphasized that “the (three) companies will all be public and will have targeted access to capital markets.”

In other words, General Electric was supporting new growth initiatives in the Aviation business with cash flow from its other businesses. When the Aviation segment becomes a stand-alone business as a result of its spin-offs, the business could become much more dependent on capital markets for funding, rather than relying on its cash flows generated internally by other segments of the business. business.

In conclusion, GE’s 10-year outlook will be highly dependent on the performance of financial markets and capital market conditions going forward, as this may affect the timing of its spin-offs and the growth of its Aviation business, as I detailed above.

Is GE Stock a Good Long Term Investment?

GE stock is not really a good long term investment in my opinion.

In the near term, General Electric shares could potentially rebound if there are signs of improving the COVID-19 situation. But GE’s long-term outlook is uncertain. The split plans might not help reduce the sum of the parts or GE’s conglomerate discount to the extent it hoped; while the Aviation activity could face financing obstacles without the support of the other activities of the company which will be split up. Considering these factors, I consider General Electric to be a holdover.

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