It's been a busy week for General Electric (GE 0.68%) and its investors, with management holding two separate investor day presentations. The first was for GE Venova, a business set to be spun off in early April that contains GE's power and renewable energy businesses. The second was for GE Aerospace, the commercial aerospace-focused business that will remain.
An analyst upgrade
Both presentations were well received, and they apparently convinced a JPMorgan analyst to upgrade the firm's price target to $180 from $166 -- an 8.4% bump -- upgrading the rating from neutral to overweight. The reason for the upgrade comes down to a combination of factors that had been lacking in the realms of management team, business model, and positioning within the cycle.
I think there's reason to believe the JPMorgan assessment is correct. GE Vernova's power business is now solidly cash-flow-generative, with 81% of its backlog in services. Its electrification business has exciting growth opportunities from the electrification-of-everything trend and the need to connect renewable energy to the grid. The wind business is a recovery in progress as management continues to execute its problematic offshore wind backlog.
Meanwhile, at GE Aerospace's joint venture, CFM International has engines on both the Airbus A320 family and the Boeing 737 MAX, from which it can generate decades of lucrative parts and services revenue.
Image source: Getty Images.
Where next for General Electric
The business model of high-ticket equipment generating long-term service revenue at GE Vernova and GE Aerospace gives both businesses relative stability through the business cycle. There's never been a question about the quality of GE's equipment, such as the HA turbine in gas power, the Haliade-X in offshore wind power, and the LEAP engine in commercial aerospace. The good news is that GE fully takes advantage of its leading equipment, and investors are reaping the rewards.
