GE’s diverse product offering insulates the company’s stock price from high sensitivity to any one segment or market. However, we have identified key business drivers that will be key to GE’s future growth. Below are the key drivers of GE’s value that present opportunities for upside or downside to our price estimate:
GE Aviation Revenues: The Aviation Segment forms a large part of the company’s value and continues remaining GE’s cash cow. The company’s LEAP Engine program has been gaining traction with deliveries of 845 LEAP units, up 30 from last year. There is, however, a headwind in terms of the supply chain disruption in the near term.
General Electric (GE) is one of the largest and most diversified core infrastructure and financial services companies in the world, with revenues of around $77 billion in 2022. The company’s products and services include aircraft engines, power generation turbines, and medical imaging machinery. GE serves customers in more than 175 countries and employs more than 168,000 people worldwide.
In 2015, GE announced its plans to realign its portfolio to become an industrially focused company and shrink its financial services business. As a part of this exit plan, GE disposed of most of the assets of GE Capital. The company retained GE Capital Aviation Services (GECAS), Energy Financial Services, and Healthcare Equipment Finance. The company has already sold the majority of its Real Estate debt and equity portfolios to The Blackstone Group. GE also completed the acquisition of Alstom SA’s energy business, which is the largest and most critical industrial investment the company has made recently.
In September 2015, GE announced the formation of GE Digital focused on combining its various technology efforts and competing with large digital players such as IBM. GE Digital will integrate the company’s Software Center, global IT and commercial software teams, and Wurdldtech, which provides industrial security systems.
In June 2018, GE announced its intention to streamline its business by focusing on Aviation, Power, and Renewable Energy segments. The primary goal of creating a simpler, stronger, leading high-tech industrial company was to strengthen its balance sheet - which has plagued the company for a long period. The company is currently in the process of its planned split into three different companies focused on Aviation, Healthcare, and Energy. The Healthcare business was split in early 2023, and Energy is expected to be separated in 2024.
GE is one of the leading players in the renewable energy space and is well-positioned to increase its market share over time. The renewable energy segment revenues stood at $13 billion in 2022, and we estimate this to reach $18 billion by the end of our forecast period. We expect this growth to be driven by the increasing domestic and international wind and hydro orders.
The aviation segment accounted for about 35% of total revenue in 2022. GE’s aviation market share is expected to grow as a result of increasing demand for air travel and enhanced demand for its LEAP engines. With ample order backlog and the continued efficiency of its LEAP engine, the segment margin is expected to expand and boost profitability.
With the impact of the Covid-19 pandemic behind us, global airline passenger traffic has seen a sharp recovery, driven by a rebound in global economic growth, increasing trade, and globalization. At the same time, driven by higher global demand for air travel, airline profits are also expected to rise after a challenging pandemic period. As a result, airlines have now begun to place orders for new airplanes, which has forced airplane makers such as Boeing and Airbus to hike their production rates. Boeing estimates that the global fleet of commercial airplanes will climb from 25,900 in 2019 to 49,405 planes by 2040. This tremendous growth in commercial airplane deliveries, in turn, will result in increased demand for airplane engines and components.
GE, being a leading manufacturer of airplane engines, will thus benefit from this upcycle in global commercial aviation.