The split is scheduled to take effect on April 2nd. The starting point for solving valuation problems is to look at how similar companies are trading in the market.
General Electric stock currently trades at about 14.5 times estimated 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA). This is very similar to non-financial and manufacturing companies around the world.
S&P500,
But that data point is worth it. The “General Electric'' that investors refer to will be gone in just a few weeks.
GE Aerospace has the stock symbol GE and is considered a blue-chip company by most on Wall Street. In other words, it should receive a premium rating.
U.S. aerospace and defense stocks trade at an average of about 18 times estimated 2024 EBITDA. However, the range is wide, as it partly depends on growth and margins. Heiko is trading at 26x Evida. Over the past few years, its sales have increased by more than 10% annually.
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Boeing trades at almost 26 times volume, while Airbus trades at 11 times volume. Although the two companies are similar, Boeing's profit margins have been depressed by problems with its 737 MAX jet and defense business. Investors expect profit margins to improve over time.
Heico achieved its growth partly through acquisitions. GE Aerospace should be able to increase sales by an average of 4% to 5% per year based on market growth alone. The number of aircraft in the world's fleet is increasing by approximately 3% to 4% annually. GE benefits not only from a price standpoint, but also from an innovation standpoint.
At 18 times estimated EBITDA, GE Aerospace would represent approximately 85% to 90% of General Electric's pre-split value. This values GE Vernova, GE's gas power generation, wind turbine and power grid business, at about $20 billion to $30 billion.
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Valuing Vernova is harder than valuing GE Aerospace. First of all, Vernova has been working for years to turn around underperforming business units. Additionally, while some companies do some of what GE Vernova does, no single company does it all. Few of the companies most comparable to Vernova are based in the United States.
Japan-based Mitsubishi Heavy Industries makes gas turbines, but also has other businesses. Schneider Electric's power grid business is far more profitable than GE's grid business. Siemens Energy and Vestas Wind Systems both manufacture wind turbines, which provides some level of support for investors, but they do not do similar deals with each other.
Another way to evaluate Vernova is to look at U.S. manufacturing companies. They trade at an average of approximately 12 times estimated 2024 EBITDA. This could be a win-win for GE Vernova as it continues to improve its margins and turn around its loss-making wind turbine business.
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Although GE Vernova did not have a bottom line profit in 2023, it generated positive free cash flow of approximately $440 million, which the company expects to improve to approximately $900 million in 2024. . EBITDA in 2023 reached approximately $800 million. He should improve to $2.4 billion in 2024 from about $2.2 billion.
This EBITDA implies an EBITDA margin of approximately 6% to 7% in 2024. Bellnova will ultimately need to achieve double-digit EBITDA margins if it wants to earn a higher multiple.
Investors will hear how Bellnova management plans to accomplish that at an investor day in New York on Wednesday. Investors will hear from GE Aerospace management on Thursday.
Through Friday's trading, GE stock has increased about 90% in the last 12 months.of
S&P500
and
Dow Jones Industrial Average
They increased by approximately 27% and 17%, respectively.
Email Al Root at allen.root@dowjones.com.
