General Electric Stock Price Forecast January 2022 – Time to Buy GE Stock?

General Electric (NYSE: GE) stock gained 2.4% yesterday and is up 5.7% for the year. The stock is outperforming the markets in 2022 so far but had underperformed by a wide margin last year.

General Electric is among the oldest US companies and has gone through several cycles in its history. After years of building the company as a massive conglomerate, GE is now trying to simplify the business. What’s the 2022 forecast for the stock and is it a good buy?

General Electric is splitting the business

Under the leadership of Larry Culp, General Electric has been taking several actions to add stockholder value. The company has sold multiple businesses over the last five years. In 2017, it sold the industrial solutions business to ABB. It was preceded by the sale of the appliance business to Haier in 2016. General Electric has also been selling the stake in Baker Hughes. It also sold the lighting division in 2020 and last year it also sold the aircraft leasing business. The stake sale process had begun even before Culp and has only gained traction under him.

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GE to split into three companies

Now, in a major move, last year General Electric announced a split. The company would break into three companies, aviation, healthcare, and energy. The spin-off of the healthcare business is expected early next year while the energy and power business is expected to be demerged in 2024.

“By creating three industry-leading, global public companies, each can benefit from greater focus, tailored capital allocation, and strategic flexibility to drive long-term growth and value for customers, investors and employees,” Culp had said on the split.

Markets gave a thumbs up to the announcement and the stock surged after the news came out. Over the years, General Electric had transformed into a complex conglomerate. In its zeal to enter or acquire new businesses, it also took on loads of debt which have been taking a toll on its stock price.

General Electric did a reverse stock split

Last year, General Electric also did a reverse stock split wherein eight shares were converted into one. Usually, companies do a reverse stock split to escape the penny stock category, or to meet the minimum exchange listing requirements. GE had none of these issues. However, its stock price was too low, considering that it is among the oldest companies in the country.

GE was once part of Buffett’s portfolio

GE was once part of Berkshire Hathaway’s portfolio. Warren Buffett took the position in 2008 at the height of the Global Financial Crisis. However, he fully exited the investment in 2017. Amid rumors that he was planning to buy the stock again, he said in 2018 that the price was not right to consider the stock. He also advised the company to work on its huge debt pile.

General Electric stock forecast

Of the 23 analysts covering General Electric stock, 14 have a buy rating while eight have a hold rating. One analyst has a sell rating. It has a median target price of $125 which is a 23% premium. Its street high target price of $143 is a 40.7% premium while the street low target price of $94 is a discount of 7.5%.

Analysts have been raising GE’s target price

Meanwhile, Wall Street analysts have been raising GE’s target price. Earlier this month, Credit Suisse analyst John Walsh upgraded General Electric stock from a hold to buy. He sees the stock well placed to capitalize on the cyclical recovery in industrial companies. Citing the downwards price action since the split announcement, Walsh said that he expects GE stock to outperform both from an absolute as well as relative basis.

Bernstein also issued a bullish note on GE stock yesterday. It said, “We join GE for the last stretch of the great unwinding. We are bullish on the stock, and ahead of consensus on mid-term operating margin expansion, particularly in the Renewables and Power segments.” Bernstein analyst Brendan Luecke rated GE stock as outperform and assigned a target price of $120.

Like fellow Wall Street analysts Luecke is also bullish on the split. “We view the spin as good news for investors. GE’s component parts are easily scalable public companies, and improved line of sight to financials and end markets will only benefit shareholders.”

General Electric stock long term forecast

Once General Electric spins off the businesses, the aviation company would retain the GE name. The aviation sector has had a turbulent ride in the last couple of years. However, the sector is rebounding and unless we see any major disruption from the COVID-19 pandemic, it should continue its recovery over the next couple of years.

Also, as GE splits, we would see efficient price discovery for the different businesses. GE is not the only company that is looking to split, and many others like GlaxoSmithKline and Johnson & Johnson have also announced splits.

Should you buy GE stock?

General Electric stock recently crossed above the 50-day SMA (simple moving average) and is finding strong support at the trendline. It is also trading above the 100-day SMA. However, it is slightly below the 200-day SMA. If the stock can cross above the 200-day SMA as well it would indicate technical bullishness.

GE stock currently trades at an NTM (next-12 months) PE multiple of 31.4x which is much higher than its historical averages. However, the multiples should be seen in the context of the near-term suppression in its earnings, especially of the aviation segment.

As the outlook for the aviation industry improves, and General Electric moves forward on the spin-off plans, we could see the stock move higher. If you are looking to play the cyclical recovery in industrials, GE stock looks a good bet.

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