We believe that industrial companies General Electric stock (NYSE: GE) and Raytheon Technologies Inc. Stock (NYSE: RTX) is likely to deliver similar returns over the next three years. Although GE trades at a relatively lower valuation of 1.0 times, lagging revenue versus 1.9 times for RTX, this valuation gap is justified given Raytheon’s superior revenue growth and profitability, as shown below.

If we look at the stock returns, Raytheon, which has had 1% returns this year, has fared much better than GE’s 30% return.
and -20% returns for the broader S&P 500 Index. There’s more to the comparison, and in the sections below, we discuss potential stock returns for both GE and RTX in the next three years. We compare a plethora of factors such as historical revenue and revenue growth and multiple evaluation in our interactive dashboard analysis of General Electric vs Raytheon Technologies

: Which stock is better? Parts of the analysis are summarized below.

1. Better Raytheon Revenue Growth

  • Raytheon’s 4.8% revenue growth over the past 12 months is better than General Electric’s 1.1% sales decline.
  • Looking at the longer time frame, GE sales declined by an average rate of 8.4% to $74.2 billion in 2021, compared to $97.0 billion in 2018, while Raytheon saw its sales rise with an average growth rate of 23.1% to 64.4 $1 billion in 2021, compared to $34.7 billion in 2018.
  • The decline in GE’s revenue can be attributed mainly to the impact of the Covid-19 pandemic on the company’s business, especially aviation, given that commercial airlines were one of the sectors worst affected during the Corona virus crisis.
  • From a perspective, aviation sales fell 33% to $22.0 billion in 2020, compared to $32.9 billion in 2019, before the pandemic. The sector’s revenue also declined to $21.3 billion in 2021.
  • However, with high demand for travel and Boeing
    Focusing on increasing production, 2022 did better for General Electric, with aviation industry 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 focusing on aerospace, healthcare and energy. The healthcare sector is expected to split in 2023 and energy in 2024, leaving the space business with General Electric. The move is largely seen as a positive for the company, as it unlocks more value for shareholders, which means GE shares could see some volatility over the next two years.
  • Raytheon has undergone a major restructuring in recent years. United Technologies
    It merged with Raytheon to form Raytheon Technologies in 2020. Moreover, it separated from OTIS and Carrier companies, making Raytheon just a company focused on aerospace and defense.
  • Raytheon’s commercial aircraft business has also been hit during the pandemic, affecting its commercial sales from OEMs and aftermarket.
  • However, there are near-term headwinds for both companies. The current high inflationary environment, rising interest rates, supply chain disruptions, and fears of an economic slowdown have weighed on the broader markets.
  • our General Electric revenue And the Raytheon Technologies revenue Dashboards provide more information about corporate sales.
  • Looking ahead, GE and Raytheon Technologies are expected to grow at a similar pace over the next three years. The table below summarizes our revenue forecasts for the two companies over the next three years and indicates a compound annual growth rate of 1.6% for each, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies that are negatively affected by Covid and those that are not or positively affected by Covid while forecasting future revenue. For companies that have been adversely affected by Covid, we are considering a quarterly revenue recovery trajectory to forecast a recovery to the pre-Covid revenue run rate. After the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies that recorded positive revenue growth during Covid, we consider pre-Covid average annual growth with a certain weight to growth during Covid and the past 12 months.

2. Raytheon is more profitable

  • GE’s operating margin of -6.0% over the past 12 months is much worse than Raytheon’s 11.7%.
  • This compares with -2.8% and 16.2% in 2019, before the pandemic, respectively.
  • Raytheon’s 10.5% free cash flow margin is also better than General Electric’s 5.8%.
  • our General Electric Income And the Raytheon Technologies Operating Income Dashboards contain more details.
  • Looking at the financial risks, both are comparable. GE’s debt of 55.0% as a percentage of equity is much higher than Raytheon’s 24.9%, while GE’s 8.3% of cash as a percentage of assets is above 3.0% for the latter, which means Raytheon has a better debt position, but General Electric has more cash cushion.

3. Network everything

  • We see that Raytheon has demonstrated better revenue growth, is more profitable, and has a better debt position. On the other hand, GE has more cash cushions and is available at a relatively lower valuation.
  • Now, given the outlook, using P/S as a base, due to high volatility in P/E and P/EBIT, we believe that both GE and Raytheon Technologies are likely to deliver similar returns over the next three years.
  • The table below summarizes the revenue and return forecasts for both companies over the next three years and indicates the expected return 19% For General Electric during this period and a 15th% Raytheon Technologies expected return, which means investors can choose either of the two to get similar returns, based on Trefis Machine Learning analysis – General Electric vs Raytheon Technologies – which also provides more details on how we arrived at these numbers.

While GE and RTX stocks are likely to deliver similar returns, it's helpful to know how GE Peers Fare on important metrics. You'll find other valuable comparisons of companies across industries at Peer comparisons.

Moreover, the Covid-19 crisis has caused many price halts that could provide attractive trading opportunities. For example, you will be surprised how counterintuitive the stock valuation is Novanta vs. Abbott.

With inflation rising and the Federal Reserve raising interest rates, among other factors, GE has seen a 30% drop this year. Can you fall more? Find out how low GE stock has fallen by comparing its decline in previous market crashes. Below is a summary of the performance of all stocks in previous market crashes.

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