Is General Electric Stock A Better Pick Over Its Sector Peer?

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General Electric

We believe that General Electric stock (NYSE: GE) is a better pick than Lockheed Martin stock (NYSE: LMT), given its better prospects. Although Lockheed Martin is trading at a comparatively higher valuation of 1.9x trailing revenues than 1.2x for General Electric, this valuation gap is largely justified, given the former’s superior revenue growth and profitability. If we look at stock returns, GE, with 30% returns in the last twelve months, has fared far better than LMT, up 3%, and the broader S&P 500 index, down 4%. There is more to the comparison, and in the sections below, we discuss why we believe GE stock will offer better returns than LMT stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of General Electric vs. Lockheed MartinWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Lockheed Martin’s Revenue Growth Has Been Better In Recent Years

  • General Electric’s revenue growth of 3,2% over the last twelve months is better than a 1.6% fall in Lockheed Martin’s sales.
  • However, if we look at a longer time frame, Lockheed Martin fares better, with its sales rising at an average rate of 3.4% to $66 billion in 2022, compared to $60 billion in 2019, while General Electric saw its sales fall at an average rate of 5.0% to $77 billion in 2022, compared to $90 billion in 2019.
  • The revenue decline for General Electric can primarily be attributed to the impact of the Covid-19 pandemic on the company’s businesses, especially Aviation, given that commercial airlines was one of the worst-hit sectors during the coronavirus crisis.
  • For perspective, Aerospace segment sales plunged 33% to $22.0 billion in 2020, compared to $32.9 billion in 2019, before the pandemic. The segment revenues declined further to $21.3 billion in 2021 before recovering to $26.0 billion in 2022.
  • Looking forward, with a rise in travel demand and Boeing focusing on increasing its production rate, 2023 is likely to fare better for General Electric.
  • It should be noted that GE plans to split into three companies focused on Aerospace, Healthcare, and Energy. The Healthcare business was split in January 2023, and Energy is expected to be separated in 2024, leaving the Aerospace business with GE. This move has largely been seen as a positive for the company, unlocking more value for shareholders and implying that GE stock may see some volatility over the next few years.
  • Lockheed Martin’s revenue growth over the recent years has been led by higher production volume for its Sikorsky helicopter programs, AC-3, Long Range Anti-Ship Missile (LRASM), and the Joint Air-to-Surface Standoff Missile (JASSM) program, among others.
  • Last month, Lockheed Martin announced over a $1 billion contract with the U.S. Navy for hypersonic missile systems. This will bolster its overall top-line growth.
  • The ongoing Ukraine-Russia conflict has increased the focus on the defense sector stocks. New business awards will likely drive the company’s performance in the near term, with possible increased defense spending, especially by NATO members.
  • Our General Electric Revenue Comparison and Lockheed Martin Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, General Electric’s sales are expected to grow faster than Lockheed Martin’s over the next three years.

2. Lockheed Martin Is More Profitable

  • Lockheed Martin’s operating margin of 12.1% over the last twelve months is far better than 0.5% for General Electric.
  • This compares with 14.4% and -2.8% figures seen in 2019, before the pandemic, respectively.
  • Lockheed Martin’s free cash flow margin of 11.8% is also better than the 7.7% for General Electric.
  • Our General Electric Operating Income Comparison and Lockheed Martin Operating Income Comparison dashboards have more details.
  • Looking at financial risk, both are comparable. While General Electric’s 37% debt as a percentage of equity is higher than 12% for Lockheed Martin, its 9% cash as a percentage of assets is higher than 5% for the latter, implying that Lockheed Martin has a better debt position, but General Electric has more cash cushion.
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3. The Net of It All

  • We see that Lockheed Martin’s revenue growth over the recent years has been better than General Electric’s, and it is more profitable and has a better debt position. On the other hand, General Electric has seen better revenue growth in recent quarters, has more cash cushion, and is trading at a comparatively lower valuation.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe General Electric stock is a better choice.
  • We expect a return of 29% for GE over the next three years and a 10% expected return for LMT stock, implying that investors will likely be better off choosing GE stock over LMT, based on Trefis Machine Learning analysis – General Electric vs. Lockheed Martin – which also provides more details on how we arrive at these numbers.

While GE may outperform LMT stock in the next three years, it is helpful to see how General Electric’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Novanta vs. Abbott.

Despite higher inflation and the Fed raising interest rates, GE has seen a 30% rise in the last twelve months. But can it drop from here? See how low General Electric stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
GE Return 2% 32% -51%
LMT Return 1% -2% 91%
S&P 500 Return 2% 5% 81%
Trefis Multi-Strategy Portfolio 4% 11% 249%

[1] Month-to-date and year-to-date as of 3/6/2023
[2] Cumulative total returns since the end of 2016

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