General Electric
picked up a strange upgrade from Wall Street. Regardless of how it happened, the message is simple enough: Buy
GE
stock.
Wells Fargo
analyst Matthew Akers, on Friday, launched coverage of the industrial giant with a Buy rating and $144 price target.
The rating is new for Akers, but Wells Fargo already covered GE shares. Before the upgrade, Joseph O’Dea covered GE stock. He rated shares Buy and had a $115 price target.
O’Dea covers diversified industrial companies and Akers covers aerospace companies. Akers took over coverage because in a few months, the company will finish its yearslong transformation process, spinning off its power-generation assets. That will leave investors with GE Aerospace and GE Vernova, its power business.
“We see high-teens [earnings growth] for GE [Aerospace] over the next few years,” wrote Akers in his launch report. “GE Aerospace has the highest aero aftermarket exposure in the group, driving strong pricing and margins and less downside if [the economy] slows.”
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He called GE’s aviation business a “premium aero asset.”
His price target values GE Aerospace at 16 times estimated 2024 earnings before interest, taxes, depreciation, and amortization, or Ebitda, which Akers says is in line with industry peers.
Akers took a shot a valuing the energy business. He put a 10 times Ebitda multiple on the power-generation business and assumed no value for the wind business. Wind is a consistent money loser. He values Vernova at about $21 a share.
GE shares were up 1.3% in premarket trading, at just under $123 a share, while
S&P 500
and
Dow Jones Industrial Average
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futures were up 0.2% and 0.3%, respectively.
The final spin of GE Vernova will happen in the first half of 2024. GE spun off
GE Healthcare Technologies
in January 2023.
This process that just played out at Wells will play out again over the coming months. More industrial analysts will cede GE coverage to more aerospace analysts. The process, of course, has already begun. Wells has transferred coverage. Another example: RBC’s industrial analyst Deane Dray now jointly covers GE with RBC’s aerospace analyst Ken Herbert.
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GE Vernova will likely have to wait for a while to pick up analyst coverage. That’s the same process that happened with GE Healthcare. Vernova will likely be treated more like an energy company on the Street.
RBC rates GE shares Buy and has a $131 price target for the stock. Overall, 67% of analysts covering GE stock rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%, according to FactSet. The average analyst price target is about $138 a share.
Coming into Friday trading, GE shares were up about 97%. Investors have been excited by the improving demand for air travel as well as all the changes at GE.
Write to Al Root at allen.root@dowjones.com
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