On Wednesday, Wolfe Research adjusted its price target on shares of General Electric (NYSE:GE), bringing it down to $162 from the previous $190, while keeping an Outperform rating on the stock.
The adjustment follows the recent completion of GE's spin-off, which saw both GE and GE Vernova (GEV) shares dip by over 2% on the first day of trading. Despite this, General Electric's stock has seen a significant increase year-to-date (YTD), climbing approximately 35% on an adjusted basis. This growth outpaces the aerospace sector's average YTD return of 13% and the S&P 500's 9% uptick.
According to Wolfe Research, the focus for General Electric's stock valuation will now be on free cash flow (FCF). With the spin-off concluded, the firm has updated its price target to exclude the roughly $30 per share previously assumed for GEV value.
The new price target is based on a constant 2025 FCF per share estimate of $5.58, but with a slightly elevated multiple, resulting in a $162 target. This represents a potential 19% upside from today's adjusted closing price.
The rationale behind the new price target includes a multiple that has been increased to around 29 times from the previous 28.5 times. This is in light of the fact that high-quality aerospace peers are trading above 31 times based on their 2024 FCF estimates. Wolfe Research believes these multiples are sustainable into 2025. For context, GE's closest peer, Safran (EPA:SAF), is currently trading at nearly 30 times, up from 28.5 times in early March.
Wolfe Research also outlined potential risks for General Electric, which include slower than anticipated growth or margin performance in the Aerospace sector, major engine quality issues, higher original equipment manufacturer (OEM) engine losses, and legacy liabilities. Despite these risks, the firm's outlook on GE remains positive with an Outperform rating intact.
InvestingPro Insights
As General Electric (NYSE:GE) navigates post-spin-off market dynamics, real-time data from InvestingPro provides a deeper look into the company's financial health and market performance. With a market cap of $149.2 billion and a price-to-earnings (P/E) ratio of 16.4, GE's valuation reflects a blend of investor sentiment and underlying earnings power. Notably, the revenue growth for the last twelve months as of Q4 2023 stands at a robust 16.96%, indicating a strong uptrend in the company's financial performance.
InvestingPro Tips highlight several aspects pertinent to investors' assessment of GE's stock. Analysts have revised their earnings upwards for the upcoming period, suggesting potential positive momentum in the company's financial outlook. Additionally, the Relative Strength Index (RSI) indicates that the stock is currently in oversold territory, which could attract investors looking for entry points in a solid company that is a prominent player in the Industrial Conglomerates industry.
For those interested in further analysis, there are more InvestingPro Tips available, offering insights such as GE's low price volatility, its track record of maintaining dividend payments for over half a century, and its moderate level of debt. Investors can unlock these additional tips and data points by subscribing to InvestingPro and using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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