It’s been a while since I wrote about General Electric (NYSE:GE) and GE actions. So long, in fact, that the industrial conglomerate is now trading at close to $ 100.
When I wrote about GE at the end of April, it was only trading around $ 13. To get that kind of take off, he had to reinvent the bulb or something.
I laugh. I am fully aware of the recent 1 for 8 stock split, which GE shareholders approved at the annual meeting in May.
Anyway, enough with the frivolity. We are going to get down to business. In April, I said that GE was a great buy around $ 12, a dollar less than where it was trading at the time. Post-split, it’s $ 96.
I don’t think much has changed on the news front – other than the stock split – so I would say the premise remains good. Here’s why.
Why is GE Stock a garish buy under $ 100?
GE reported better-than-expected second quarter 2021 results at the end of July. Sales were $ 18.3 billion, Which one is $ 6 million higher than the consensus estimate and 8.8% higher than a year earlier.
Ultimately, GE gained 5 cents per share in the quarter, which is 25% higher than analysts’ expectations and significantly higher than its 14-cent loss in the second quarter of 2020. Moreover, in its four industrial segments, it recorded solid orders. and income growth. Without the $ 99 million loss from its renewable energy segment, all four areas would have been in the dark in the second quarter of 2021.
Equally exciting is that GE has raised its Industrial Free Cash Flow (FCF) forecast for 2021 to $ 3.5 billion to $ 5 billion. This is major news.
Based on a midpoint of $ 4.3 billion, GE stock currently has an FCF return of around 3.8% and rising. It’s impressive when you know that at this time last year, the company had a FCF loss of $ 4.28 billion for the first six months of 2020. At the end of last year, he had a full-year FCF of $ 606 million. It was down from $ 2.3 billion from 2019, but still positive for the entire year.
If it were to meet its mid-term FCF targets, it would generate 610% industrial FCF growth in 2021. That alone is expected to drive up GE’s stock by 2022.
A return to GE’s roots
In March, GE announced that it would sell its jet leasing business, GE Capital Aviation Services (GECAS), to Aercap (NYSE:ARE) for $ 24 billion in cash and 46% of the combined entity.
This is a big reason why I included GE in a group of dividend stocks to buy back in march. I think the company’s decision to go back to its industrial roots will pay off for patient investors (and make GE CEO Larry Culp a wealthy person in the process.)
More importantly, the second quarter results show that the industrial activities of the company have reached a milestone. As a result, it wouldn’t surprise me if all four segments were generating non-GAAP earnings by this time next year or shortly thereafter.
Currently, the healthcare unit has the largest non-GAAP profit at $ 1.42 billion in the second quarter of 2021, followed by aviation at $ 833 million, electricity at $ 243 million and a loss of $ 296 million from renewable energy.
In terms of margin, the healthcare unit had a profit margin of 16.8%, 370 basis points more than the same six months in 2020. Thus, while the unit’s sales increased by 9 % year over year, the 39% growth rate in profits really stands out.
All four segments saw their margins increase in the first six months of 2021. So if GE can end the last two quarters of 2021 positively, it will have two segments with double-digit profit margins for the year. It is very positive.
Is GE Stock a $ 100 Buy?
As of this writing, GE stock is trading around $ 104. It’s $ 13 on a pre-split basis. In April, I thought it was about a $ 12 buy. Since then, the business has grown much stronger.
Culp said BNN Bloomberg he believes it Aercap Agreement makes GE “a much more focused, simpler and stronger company. ” I don’t think there is any question that he is right.
So while a long-term investor isn’t likely to be hurt by buying at current prices, you should make a commitment if you can get stocks at $ 96 or less in the coming weeks. The old GE becomes itself again – and that’s a great thing.
As of publication date, Will Ashworth did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.
Will Ashworth has been writing about investing full time since 2008. His publications include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in the United States and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.