Choose a General Electric stock or an industry peer – both can offer comparable returns

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We believe that industrial companies General Electric stock (NYSE: GE) and 3M stock (NYSE: MMM) is likely to offer similar returns over the next three years. Although General Electric
GE
trades at a relatively lower valuation of 1.0x lagging revenue versus 1.8x for 3M, this valuation difference is justified given 3M’s superior revenue growth and profitability, as discussed below.

Looking at stock returns, GE, with returns of -33% this year, slightly outperformed the -39% returns for MMM stocks, while both underperformed the broader S&P 500 index, with a drop of 25%. There’s more to the equation, and in the sections below we discuss potential stock returns for GE and MMM over the next three years. We compare a range of factors, such as historical revenue growth, returns and valuation multiple, in an interactive dashboard analysis of General Electric vs 3M: Which stock is a better bet? Portions of the analysis are summarized below.

1. 3M’s revenue growth is better

  • 3M’s 0.5% revenue growth over the past 12 months is better than a 1.1% decline in General Electric’s revenue.
  • Over a longer period of time, General Electric’s revenue declined by an average of 8.4% to $74.2 billion in 2021, compared to $97.0 billion in 2018, while 3M saw its revenue grow at an average growth rate of 2%. 7% to $35.4 billion in 2021, compared to $32.8 billion in 2018.
  • The decline in sales for General Electric can mainly be attributed to the impact of the Covid-19 pandemic on the company’s operations, especially aviation, as commercial airlines were one of the hardest hit sectors during the coronavirus crisis.
  • In perspective, Aerospace segment revenues declined 33% to $22.0 billion in 2020, compared to $32.9 billion in 2019, before the pandemic. Segment revenue declined further to $21.3 billion in 2021.
  • However, with an increase in travel demand and Boeing
    BA
    focused on increasing production rates, 2022 has outperformed General Electric, with Aerospace revenue up 19% to $11.7 billion in the first half of the year.
  • It should be noted that GE plans to split into three companies focused on aerospace, healthcare and energy. The Healthcare business is expected to be split in 2023 and Energy in 2024, leaving the Aerospace business with GE. This move was largely seen as positive for the company, freeing up more value for shareholders, implying that GE stock could show some volatility in the coming years.
  • 3M’s revenue growth in recent years has been driven by high demand for safety and personal protective equipment, while sales of some of its other products, including office products, have been hit during the pandemic as many offices closed, given the lockdowns and shelter – in-place restrictions, resulting in lower demand. Demand for transportation products was also lower due to lower automotive production amid a shortage of semiconductor chips.
  • However, this trend has now reversed. 3M is facing declining demand for safety and protective equipment, while consumer activities, including home improvement, are seeing rising demand after the pandemic.
  • U.S General Electricity Income and 3M revenue dashboards provide more insight into the turnover of the companies.
  • Looking ahead, both General Electric and 3M are expected to grow at a similar pace over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years and points to a CAGR of 1.6% for both, based on Trefis Machine Learning analysis.
  • Please note that we have different methods for businesses negatively impacted by Covid and businesses not or positively impacted by Covid as we forecast future earnings. For businesses negatively affected by Covid, we factor in the quarterly revenue recovery trajectory to predict recovery to pre-Covid revenue returns. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies that register positive revenue growth during Covid, we consider the annual average growth before Covid with a certain weight of growth during Covid and the last twelve months.

2. 3M is more profitable

  • General Electric’s operating margin of -6% over the past 12 months is much worse than 3M’s 19%.
  • This compares with -3% and 19% figures in 2019, respectively, before the pandemic.
  • 3M’s free cash flow margin of 19% is also better than General Electric’s 6%.
  • U.S General electrical operating result and 3M Operating Profit dashboards have more details.
  • Looking at financial risk, 3M outperforms GE. 3M’s 31% debt as a percentage of equity is lower than 57% for GE, while the 10% cash as a percentage of assets is higher than 8% for the latter, implying that 3M has a better debt position and more cash buffer.

3. The net of everything

  • We see that revenue growth and profitability have been better for 3M, and it also offers lower financial risk than GE. However, GE is trading at a relatively lower valuation.
  • Looking at the outlook now, based on the P&L, due to high swings in the P/E and P&L, we think both GE and MMM are likely to see comparable returns in the coming years. offer.
  • The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 20% for GE over this period and an expected return of 17% for MMM stock, meaning investors can choose one of the two. or both if they want to invest in the industrial sector, based on Trefis Machine Learning analysis – General Electric vs 3M – which also provides more details on how we arrive at these figures.

While GE and MMM stocks likely offer similar returns, it’s helpful to see how: Peers from General Electric rate on metrics that matter. Other valuable comparisons for companies in different sectors can be found at Pear Comparisons.

In addition, the Covid-19 crisis has created many price discontinuities that can provide attractive trading opportunities. For example, you will be amazed at how counter-intuitive stock valuation is Novanta vs. Abbott.

With higher inflation and the Fed’s rate hike, among other things, GE has seen a 33% drop this year. Can it drop any further? See how low General Electric’s stock can go by comparing the decline in past market crashes. Here’s a performance breakdown of all stocks in past market crashes.

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