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GE’s aerospace business is expected to be the more valuable of two companies that will emerge as separately traded entities in 2024.
Yasuyoshi Chiba/AFP/Getty Images
General Electric
will separate its power businesses from the aerospace business in early 2024. It feels like a long way off, but investors will eventually have to value the two businesses separately to see what’s next for
GE
stock. One analyst is getting a jump on that process.
Tuesday evening, Wolfe Research analyst Nigel Coe published his first estimates for GE’s power business, which will be called GE Vernova, and the remaining GE aerospace business.
It is an early look into the future. Wall Street analysts, of course, have 2024 earnings estimates for GE published. The company, however, won’t exist in its current form in 2024.
For 2023, Wall Street expects about $2 in earnings for GE. The 2024 estimate sits at about $3.80 a share. The big year-to-year jump reflects the expected improvement in both GE’s aerospace and power-generation businesses.
Eventually, the Street will have to look at GE as two companies. As for Coe, “this is our first stab at stand-alone financials for GE Aerospace and Vernova.” Working on his numbers, Coe allocated each business with things such as corporate overhead and debt.
For 2025, he has GE Aerospace generating $7.5 billion in earnings before interest, taxes, depreciation and amortization. (GE’s aviation segment generated roughly $8 billion in Ebitda in 2019, before the pandemic.)
Coe values that Ebitda at about 12 times.
Raytheon Technologies
(RTX) is trading for about 11 times estimated 2025 Ebitda. Coe believes GE’s aerospace franchise deserves a “modest premium.”
Most investors would agree GE’s aerospace franchise is a solid, valuable business. “Vernova is a much more complex story,” writes Coe. Vernova is losing money today. Coe projects a small Ebitda loss for 2023, then $2.1 billion of Ebitda in 2024 and $2.9 billion in 2025.
Coe values Vernova at 4.5 times projected 2025 Ebitda, or about $13 billion. That’s right where peer
Siemens Energy
(ENR. Germany) trades. There is a lot of volatility around Vernova earnings and valuation, but its only about 12% of Coe’s total valuation for GE.
The two values work out to about $106 a share for GE today. Coe’s price target is $101 because he deducts $5 as a “hedge related to insurance.” GE still has some long-term-care insurance contracts on the books.
GE was trading Wednesday afternoon at $91.09 a share, down 1.2% for the day. The
S&P 500
was down 0.1%,
The average analyst price target currently is about $92 a share. Coe is a little more bullish than average and rates GE share Buy. Overall, two-thirds, or 67%, of analysts covering the stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
The GE break up plan is working for shareholders so far. GE stock is up about 41% year to date, about 43 percentage points better than the 2% decline of the
Dow Jones Industrial Average.
Shares of
GE HealthCare Technologies
(GEHC), which spun off from GE early in 2023, have gained about 31% year to date.
Write to Al Root at allen.root@dowjones.com
