What happened
Shares of General Electric (GE -0.82%) rose 12.9% in March, according to data provided by S&P Global Market Intelligence. The primary catalyst for the move was the industrial company's well-received investor conference on March 9.
In a nutshell, management had good things to say about all three segments. However, as a reminder, GE Power and GE Renewable Energy are being combined and will be spun off as GE Vernova in early 2024, leaving GE Aerospace as the remaining business.
So what
Management's update was significant. At GE Aerospace, investors were concerned about margin performance because of the massive ramp up in loss-making LEAP engines (the real money is made in the aftermarket). Still, management guided toward improving profit margin from 18.3% in 2022 to 20% in 2025.
At GE Power, the January guidance for "slightly better" operating profit in 2023 compared to 2022 was slightly disappointing, but the recent update called for a low-double-digit increase in 2024 from 2023.
GE Renewable Energy is the company's problem child. After significant setbacks in 2022 -- not least from surging raw material and logistics costs -- there were significant concerns that the business might not return to profit anytime soon. For reference, the business (in fact, its three different businesses -- onshore wind, offshore wind, and grid solutions) lost $2.2 billion in 2022. However, management's updated guidance calls for GE Renewable Energy to be profitable in 2024. That would represent a significant turnaround in profitability, which makes a difference to the investment case for the stock.
Now what
A successful spin-off of GE Vernova is crucial to GE stock prospects, and the updated guidance encourages investors. Let's visualize what investors will look at for the year ahead based on GE's guidance. GE Power should be facing a double-digit increase in profit. Meanwhile, GE Renewable Energy will have profitability within reach.
Image source: Getty Images.
Overall, GE Vernova will be a profitable company in 2024 with mid-single-digit margins holding two businesses with positive earnings momentum. That is a lot better "look" than the combined $1 billion loss that GE Power and GE Renewable Energy generated in 2022. Meanwhile, GE Aerospace powers on as it enjoys the ongoing recovery in commercial aerospace.
If GE manages to deliver on its guidance for 2023 and maintains the 2024 guidance, prospects will continue to look bright for the company.
