GE) finally looks set to recover. As air travel starts to return, the numbers paint a clear post-pandemic picture: that GE stock is no longer a value trap.” data-reactid=”12″>After a disappointing summer, General Electric (NYSE:GE) finally looks set to recover. As air travel starts to return, the numbers paint a clear post-pandemic picture: that GE stock is no longer a value trap.
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Finally, the wait seems to be over. Since joining in late 2018, turnaround CEO Larry Culp has quietly sold off GE’s less profitable businesses. And despite the coronavirus pandemic, here’s why GE has become the most attractive aviation company in my Quantitative Stock Ranker (QSR) list.
InvestorPlace – Stock Market News, Stock Advice & Trading Tips” data-reactid=”40″>InvestorPlace – Stock Market News, Stock Advice & Trading Tips
GE Stock: An Aviation Powerhouse
DHR) for $21.4 billion. Then in a stunning move just two months later, the company said “goodbye” to its 129-year-old light bulb business in a sale to Savant Systems, a maker of home automation technology. These moves follow years of dismantling within the former conglomerate.” data-reactid=”42″>Jack Welch would barely recognize the slimmed-down GE of today. In March, the company shed its BioPharma segment to Danaher (NYSE:DHR) for $21.4 billion. Then in a stunning move just two months later, the company said “goodbye” to its 129-year-old light bulb business in a sale to Savant Systems, a maker of home automation technology. These moves follow years of dismantling within the former conglomerate.
spend more on fuel-efficient engines, even if they come with pricey service contracts.
Statista
These profits haven’t gone unnoticed in my QSR scoring system. GE now gets an “A” in its “quality-for-growth” score, putting it in the top 10% of all U.S. large-cap companies.
GE’s Return to Pre-Pandemic Growth
It’s not, however, all good news. To create these fortress margins, GE sacrificed one crucial item: growth.
sank 89% in H1 2020 as aircraft usage tumbled. Today, GE’s QSR Growth score sits at an anemic “C+,” pulling down its overall QSR grade to a “B.”
Gurufocus
won’t return to normal until 2024, July and August have seen some improvements. By the end of August, domestic air travel in China reportedly returned to 98% of last year’s levels, while the U.S. returned to 42%.
TSA
$13.7 billion by 2024 as jet engines reenter service. Such an increase (after years of falling EBITDA) would raise GE’s QSR Growth score to a “B+,” pushing its overall score to an “A.”
That makes GE the top-scoring company in the U.S. aviation industry.
- Southwest: D-
- American: F
- Delta: F
- United: F
- Boeing: F
What Can Go Wrong? GE Capital
GE’s balance sheet might remain a cause for concern. The company receives a “C” grade for financial strength, despite having $41.4 billion in liquidity.
“zero equity value.” It warned that the company could lose billions in lawsuits.
GE’s management has moved to shore up the company’s balance sheet. In 2018, GE Capital had a 5.7:1 D/E ratio. By 2020, that figure had shrunk to a more manageable 4.2:1.
RYCEY) reported a record 5.4 billion pound loss and warned of potential bankruptcy (signaling possible turbulence in the jet engine industry). But these moves should be enough to help GE survive until air travel returns. In April, Moody’s, a bond rating service, reaffirmed its investment-grade Baa1 rating.” data-reactid=”133″>It’s still far from perfect; AerCap Holdings, the largest aircraft leasing company globally, has an even lower 3.7:1 ratio. And last Thursday, rival Rolls Royce (OTCMKTS:RYCEY) reported a record 5.4 billion pound loss and warned of potential bankruptcy (signaling possible turbulence in the jet engine industry). But these moves should be enough to help GE survive until air travel returns. In April, Moody’s, a bond rating service, reaffirmed its investment-grade Baa1 rating.
Gurufocus
Will GE Stock Rocket Back?
notable contract wins.” data-reactid=”156″>The QSR scores have been quick to spot GE’s comeback. Over 60% of the firm’s revenues now come from its high-margin aviation and medical businesses. Its loss-making renewable energy segment has recently scored some notable contract wins.
Analysts estimate that GE will generate over $99 billion revenue and $13.7 billion EBITDA by 2024. Putting these numbers into a two-stage discounted cash flow (DCF) model shows GE has a fair value of $16.5, a 152% upside to current prices.
Finbox.com
There’s a good chance GE will finally meet these expectations as years of turnaround start to pay off.
As we head into 2021, investors looking to play into the airline recovery story should strongly consider GE stock, an undervalued diamond in the rough.
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