Let's not string things along here. The answer is roughly $46,000. This significant return represents an exceptional performance for investors who parked $10,000 in the former General Electric stock five years ago, coinciding with the early years of CEO Larry Culp's tenure. While the lineal heavyweight champion to GE is now GE Aerospace(NYSE: GE), investors have also received stock in GE HealthCare Technologies(NASDAQ: GEHC) and GE Vernova(NYSE: GEV) along the way. Here's how GE investors got there and why there could be more to come.
Investing in GE
After adjusting for stock splits and spinoffs, GE's share price five years ago was around $50 a share. This means a $10,000 investment would have resulted in 200 shares in GE, now known as GE Aerospace. Currently trading at around $163 a share, those 200 shares are worth $32,600.
The figure above is impressive enough, but you must also include the spinoffs of GE HealthCare and GE Vernova in the calculation. The former was spun off in 2023 on a 1-for-3 basis, meaning GE shareholders would have received about 67 shares in GE HealthCare, valued at about $5,100 at the current price.
The recent GE Vernova spinoff was on a 1-for-4 basis, meaning around 50 shares in GE Vernova for an investor holding 200 shares in GE. Those 50 GE Vernova shares are now worth around $8,300.
The combined value of the current GE Aerospace holding, along with the GE HealthCare and GE Vernova stakes, totals $46,000, or slightly more when factoring in the minimal dividends from GE and GE HealthCare.
Which of the three former General Electric businesses is the best investment now?
All three are attractive companies in their own right.
GE Aerospace has excellent long-term growth prospects. Airplane engines can be used for several decades, meaning many years of higher-margin aftermarket revenue. In addition, GE has a dominant position in airplane engines. Its joint venture with Safran, CFM International, produces the LEAP engine, the sole option on the Boeing 737 MAX and one of two engines on the Airbus A320 neo family of airplanes. It also made the CFM56 engine on the legacy Airbus A320 and Boeing 737 airplanes. In addition, GE Aerospace manufactures Boeing 777, Boeing 777X, Boeing 787, and Airbus A330 engines.
The guarantee of a stream of long-term income servicing and maintaining this fleet of engines means investors should be willing to pay a premium for the stock. That's even more the case since the company is aggressively ramping up engine production (engines are typically sold at a loss), holding back near-term profitability.
That said, the stock trades on nearly 25 times the estimated 2026 free cash flow (FCF) and it's hard to argue that it's anything more than lightly undervalued right now.
GE Vernova
It's a similar conclusion for GE Vernova but for wholly different reasons. The company's electrification and power businesses are solidly profitable and cash-generative, but its wind business is still unprofitable. So, unlike GE Aerospace, GE Vernova isn't firing on all cylinders.
Its growth story is different and based on significant growth in profit margins as it works through unprofitable offshore wind contracts. Wall Street sees the company's earnings before interest and taxation (EBIT) margin more than doubling from 3.2% in 2024 to 7.2% in 2026. Compared with GE Aerospace, GE Vernova trades on 22 times Wall Street estimates for FCF in 2026, and while it's an attractive growth story, its valuation looks a little stretched.
GE HealthCare
Finally, trading on 17.5 times the estimated 2023 earnings and 20 times estimated 2024 FCF, GE HealthCare looks like the best value of the three.
Moreover, there's a long-term margin expansion story with management looking to expand its new product introductions, increase pricing, and develop solutions such as theranostics, where it has an edge. As a manufacturer of imaging equipment (scanners, etc.) and pharmaceutical diagnostics used to diagnose and ultimately deliver drugs precisely to affected areas (theranostics), GE HealthCare is well positioned in this growing field.
Image source: Getty Images.
Unfortunately, its first-quarter earnings report showed some mixed margin performance, and management needs to meet its guidance for margin expansion in 2024 to reassure investors that it's on the right track. Still, the stock looks like a good value on balance, and management continues to expect 4% organic revenue growth and ongoing margin expansion. As such, it is the best investing option of the three stocks.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
