Buy any dip in GE stock even with uncertainty around the spinoff

Key Points

• Shares of GE are down slightly as weak guidance overshadowed a double beat in the company's fourth-quarter earnings report. 
• The next quarter will likely be the last quarter that GE reports before spinning off its Verdana power-generation business.  
• GE stock looks fairly valued, but investors can look at any dip as a buying opportunity ahead of the split.  

Shares of GE NYSE: GE are down about 1.5% in midday trading after the company reported earnings. The headline numbers on the top and bottom lines were a continuation of what investors have come to expect as GE becomes a simplified, and streamlined, company.  

The current quarter will likely be the last quarter when GE will report results from its Aerospace and power-generation (Vernova) units.  

In the second quarter, the spin-off of Vernova should be complete. Investors will recall that GE spun off its healthcare business, now GE Healthcare Technologies, in 2023. The company investors know as GE today will be GE Aerospace, with GE Vernova operating (and reporting) as a separate company.  

But the devil for analysts and investors is in the details of the company's guidance. GE offered guidance that was below the street's expectations. GE expects earnings per share (EPS) between 60 and 65 cents for the upcoming quarter. Analysts are forecasting EPS of 70 cents. Adding to the hesitancy is that the first quarter is typically GE's slowest quarter.  

Which stock are you buying? 

Current GE shareholders will likely get shares of GE Vernova as part of the spin-off. However, your decision to invest in GE becomes clearer when you consider what company and stock you're buying. The aerospace division is a highly profitable division with strong growth prospects that will allow it to compete favorable with other aerospace stocks.

Some highlights from the company's earnings call for the division include 30% year-to-date growth in commercial engine deliveries. The company has a solid backlog, including a recent order from Air Canada for 36 GEnx-1B engines plus four spares. The company reports that this is the company's fastest-selling high-thrust engine, with over 50 million flight hours. 

By contrast, Vernova, while having a strong outlook for growth, is far less profitable. Much of that has to do with the wind power business, which produced an operating loss of $300 million, an improvement from the $500 million loss it reported last year. That is offset by the company's gas-power business, which posted an operating profit of $800 million.  

GE stock is still a buy-the-dip candidate 

GE stock is up 69% in the last 12 months. Investors may believe now is a time to take a breather, particularly with the coming spin-off of Vernova. On the one hand, it's fair to say that the simplified, streamlined GE Aerospace may not command the price target that the company has today. Analysts have to decide the right price target for GE Aerospace and GE Vernova as separate entities. 

But with the company projecting $5 billion in free cash flow for its Aerospace division, a number that analysts believe may be light, it will be a highly profitable division. And it's possible that analysts will want to front-run the potential earnings growth from a leaner company.  

GE stock is finding support around its 10- and 20-day simple moving averages, and technical indicators suggest the stock is a buy at the current level or lower. The GE analyst forecasts on MarketBeat show that the stock may find it tough to move much higher.  

Nevertheless, I wouldn't expect investors to get much help from analysts after the earnings report. Investors should get more information on that as analysts issue new ratings for GE stock. However, you can expect that GE stock will fall around the time of the split. The stock may be fairly valued at its current price, but investors should look to add on any meaningful dip.