General Electric (GE) reported its second-quarter earnings on July 27, 2023, and the results were better than expected. The company posted a revenue of $16.7 billion, up 15% year-over-year, and a net income of $35 million, compared to a loss of $1.2 billion in the same quarter last year. The earnings per share (EPS) was $0.68, beating the analysts’ estimate of $0.621. The stock price of GE rose by 3.5% on the day of the announcement, and has gained more than 73% in 2023 so far2.
GE’s Business Segments Show Strong Performance
GE’s four main business segments are aviation, power, renewable energy, and healthcare. All of them showed strong performance in the second quarter, with revenue growth and margin improvement. The aviation segment, which was hit hard by the COVID-19 pandemic, saw a revenue increase of 10% year-over-year, driven by higher service revenue and spare parts demand. The segment’s operating margin was 9.9%, up from -27.6% in the same quarter last year3. The power segment, which provides gas and steam turbines for electricity generation, had a revenue growth of 14% year-over-year, and an operating margin of 8.4%, up from 4.6%. The renewable energy segment, which includes wind, solar, and grid solutions, had a revenue growth of 35% year-over-year, and an operating margin of 4.5%, up from -5.7%. The healthcare segment, which provides medical equipment and services, had a revenue growth of 14% year-over-year, and an operating margin of 18.1%, up from 14.9%3.
GE’s Outlook Remains Positive
GE’s CEO Larry Culp said that the company is “accelerating our transformation to become a more focused, simpler, stronger industrial company”3. He also raised the company’s full-year outlook for free cash flow (FCF), which is a measure of how much cash a company generates after paying for its operating expenses and capital expenditures. GE now expects to generate between $3.5 billion and $5 billion in FCF in 2023, up from the previous range of $2.5 billion to $4.5 billion3. Culp said that the FCF improvement reflects the company’s “strong operational execution” and “increasing momentum” across its businesses3.
GE also announced that it will reduce its debt by $7 billion in 2023, using the proceeds from the sale of its jet leasing unit to AerCap Holdings NV4. The deal, which was announced in March 2023, is expected to close by the end of the year. GE said that the debt reduction will help improve its balance sheet and credit rating4.
Analysts Are Bullish on GE Stock
Analysts are generally optimistic about GE’s prospects, as the company recovers from the pandemic and continues its turnaround strategy under Culp’s leadership. According to MarketBeat5, out of 17 analysts who cover GE stock, 13 have a buy rating, three have a hold rating, and one has a sell rating. The average price target is $120.88, which implies a potential upside of 6.4% from the current price of $113.576. Some of the reasons why analysts are bullish on GE stock are:
- GE’s aviation segment is expected to benefit from the recovery of air travel demand as more people get vaccinated and travel restrictions ease.
- GE’s power and renewable energy segments are expected to benefit from the global shift to cleaner energy sources and the growing demand for electricity.
- GE’s healthcare segment is expected to benefit from the increased spending on healthcare infrastructure and innovation.
- GE’s FCF generation is expected to improve as the company reduces its costs, increases its margins, and sells its non-core assets.
- GE’s debt reduction is expected to improve its financial flexibility and lower its interest expenses.
Conclusion
GE’s second-quarter earnings showed that the company is making progress in its transformation and recovery from the pandemic. The company beat analysts’ expectations on revenue and EPS, and raised its full-year outlook for FCF. The company also announced that it will reduce its debt by $7 billion using the proceeds from the sale of its jet leasing unit. Analysts are bullish on GE stock, as they expect the company to benefit from the recovery of air travel demand, the global shift to cleaner energy sources, and the increased spending on healthcare infrastructure and innovation.
