GE Earnings: Travel Boom Still Lifting GE’s Wings to New Heights

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

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 organic plus sales growth expectation for 2023 (maybe 50 basis points more of sales growth than what’s implied in management’s organic guide). Consequently, we lift our fair value estimate to $117 per share from $113 previously, 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 in the stock has mostly settled, as we glean from even the more bearish of estimates.

During the second quarter, total adjusted revenue (which excludes insurance revenue) rose to $15.9 billion, or a 19% organic increase, while 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 GE’s financial performance.