GE Earnings: Travel Boom Still Lifting the Firm’s Wings

General Electric Stock at a Glance

• Fair Value Estimate: $117.00
• Morningstar Rating: 3 stars
• Morningstar Uncertainty Rating: High
• Morningstar Economic Moat Rating: Narrow

General Electric Earnings Update

General Electric GE crushed our estimates for its second-quarter revenue and earnings. The most meaningful differences from our top-line estimates came from renewables, led by higher revenue from the grid and offshore wind equipment businesses. At the margin level, aerospace operating profits cruised past our expectations. These exceptional results came thanks to commercial service revenue from strong external part sales and internal shop visits. In the first half alone, GE’s year-to-date earnings exceeded what the firm produced in its prior full-year results, excluding GE HealthCare.

We are pleased with these results. We lift our 2023 adjusted EPS expectations to $2.42 (or 12 cents above the high end of management’s revised range) and free cash flow of $4.6 billion. Our more bullish sentiment reflects a low-double-digit expectation for organic plus sales growth in 2023 (maybe 50 basis points more than implied in management’s organic guide). Consequently, we lift our fair value estimate to $117 per share from $113, in line with the stock price.

While we’re convinced GE will continue to perform strongly over the long term, and this is reflected in our estimates, we no longer believe the stock represents a compelling value for investors. In fact, the market has now removed its previously embedded deal limbo, meaning it’s not waiting for next year’s spinoff to assign full credit to intrinsic value. Furthermore, the debate over the stock has mostly settled, as we glean from even the more bearish estimates.

During the second quarter, GE’s total adjusted revenue (which excludes insurance revenue) rose to $15.9 billion, or a 19% organic increase, while its adjusted profit margin rose to 8.8%, up 160 basis points organically. Unsurprisingly, commercial aerospace was once again the hero and the main driver of the company’s financial performance.