General Electric Morningstar Report

Morningstar Equity Analyst Report | Report as of 16 Sep 2023 04:25, UTC | Reporting Currency: USD | Trading Currency: USD
| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 21
General Electric Co GE QQQ 15 Sep 2023 21:18, UTC
Last Price Fair Value Estimate Price/FVE Market Cap Economic MoatTM Equity Style Box Uncertainty Capital Allocation ESG Risk Rating Assessment1
115.49 USD 118.00 USD 0.98 125.87 USD Bil Narrow 3 Large Growth High Exemplary ;;;;;
15 Sep 2023 8 Aug 2023 21:45, UTC 14 Sep 2023 6 Sep 2023 05:00, UTC
Price vs. Fair Value
Fair Value: 118.00

8 Aug 2023 21:45, UTC
200
Last Close: 115.49
150 Over Valued
Under Valued
100
50
0
2018 2019 2020 2021 2022 YTD
0.54 0.95 0.97 0.72 0.69 0.98 Price/Fair Value
-54.50 50.07 -2.87 9.71 -10.97 55.66 Total Return %
Morningstar Rating
Total Return % as of 15 Sep 2023. Last Close as of 15 Sep 2023. Fair Value as of 8 Aug 2023 21:45, UTC.
Contents
Business Description GE's Secular Tailwinds Will Still Propel Growth
Business Strategy & Outlook (8 Aug 2023)
Bulls Say / Bears Say (8 Aug 2023)
Business Strategy & Outlook Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023
Economic Moat (8 Aug 2023)
We believe Larry Culp is engineering a successful turnaround of General Electric. We think there's still
Fair Value and Profit Drivers (8 Aug 2023)
Risk and Uncertainty (8 Aug 2023) upside in GE's turnaround story, particularly with the passage of the Inflation Reduction Act.
Capital Allocation (8 Aug 2023)
Analyst Notes Archive
Driving GE's turnaround process is a steadfast cultural commitment to lean tools. We believe GE has line
Financials of sight to about a 7% free cash flow margin in 2023 and will reach double-digit free cash flow margins
ESG Risk next year.
Appendix
Research Methodology for Valuing Companies After multiple portfolio moves, GE has reduced its debt burden by over $100 billion during Culp's tenure.
Important Disclosure
We think there's an exceptional opportunity for GE to shift from debt reduction to other capital
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The primary analyst covering this company does not own its stock. GE Aerospace remains the crown jewel of GE's portfolio. We believe that there is still some pent-up
The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk
1
demand for air travel and that commercial aerospace revenue should overtake 2019 levels by 2024. TSA
Rating.
checkpoint travel figures reveal that U.S. passenger throughput is lapping 2019 levels on many days.
Joint venture CFM has more narrow-bodies that are 10 years or younger than the rest of the industry,
and nearly half of its CFM56 installed base has yet to see its first shop visit. Additionally, we think GE
Aerospace can recover to 20% operating margins by at least 2025 (and perhaps 2024), while delivering
incremental margins in the mid-20s over the medium term.
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Morningstar Equity Analyst Report | Report as of 16 Sep 2023 04:25, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 2 of 21
Sector Industry
Specialty Industrial Finally, while the renewables business is incurring significant losses, we believe GE Vernova CEO Scott
p Industrials
Machinery
Strazik can help drive the spinoff to profitability in 2024, including breaking even in renewables by 2024.
Business Description
Favorable U.S. legislation provides a backdrop of more certainty around timing of wind-related projects,
GE was formed through the combination of two
and a combination of better project selectivity, a focus on the North American market, and rightsizing
companies in 1892, including one with historical ties to
American inventor Thomas Edison. Today, GE is a global should help drive the profits GE investors have long been clamoring for.
leader in air travel and in the energy transition. The
company is known for its differentiated technology and Bulls Say Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023
its massive industrial installed base of equipment u Bears vastly underestimate the incremental profits GE will make from operating leverage when
sprawled throughout the world. That installed base most commercial aerospace fully recovers and the windfall from the Inflation Reduction Act.
notably includes aerospace engines, gas and steam
u GE is led by, in our view, the premier U.S. multi-industry CEO. Larry Culp has assembled a team of
turbines, and onshore and offshore wind turbines. GE
leaders who are steadily changing GE's culture to one embracing lean principles.
earns most of its profits on the service revenue of that
u GE's installed base boasts the youngest fleet, with nearly 50% of its CFM fleet yet to make its first shop
equipment, which is generally higher-margin. The
company is led by former Danaher alumnus Larry Culp, visit. This bodes well for its high-margin aftermarket business.
who is leading a multiyear turnaround of the storied
conglomerate based on lean principles. Bears Say Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023
u GE's turnaround has a lot of unknowns, including when renewables will finally reach profitability and
when the Inflation Reduction Act will move toward full implementation.
u While GE will generate orders from the energy transition, it has consistently made negative earnings
from both Power and Renewables, and new equipment orders will only pressure and dilute margins
further.
u Bulls vastly underestimate the amount of contingent liabilities GE will have to contend with.
Economic Moat Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023

We assign General Electric a narrow economic moat rating based on switching costs and intangible
assets stemming from its massive installed base of industrial equipment and differentiated technology.
We hold off on assigning GE a wide economic moat rating because of our lack of confidence in our 20-
year hurdle rate for excess return on capital.
GE Aerospace meets our highest standard of a wide-moat business and is GE's crown jewel. The
segment benefits from intangible assets and switching costs, and we think it is the premier commercial
engine manufacturer that can deliver at scale. GE competes in a virtual duopoly in both the wide-body
(twin-aisle) and narrow-body (single-aisle) space against Rolls-Royce and Pratt & Whitney. Excluding its
50% interest in its CFM joint venture with Safran, we estimate that GE typically commands roughly half
of the total commercial engine market, as measured by the installed base. The aviation segment
operates on a razor-and-blade model. A GE/CFM engine is present in three of every four commercial
departures. In the formative years after a new engine launch (about one third of the overall cost of a
new plane), GE will typically implement an estimated 70% discount on its new narrow-body engines
from their listed prices. Over time these discounts erode. A typical jet engine will then first require
ß
Competitors
General Electric Co GE RTX Corp RTX Rolls-Royce Holdings PLC RR. Vestas Wind Systems A/S VWS
Fair Value Fair Value Fair Value

118.00 111.00 Last Close 197.00
Uncertainty : High Uncertainty : Medium 227.40 Uncertainty : High
Last Close Fair Value
115.49 Last Close 223.00 Last Close
Uncertainty : High 156.72
75.80
Economic Moat Narrow Wide Narrow None

Currency USD USD GBX DKK
Fair Value 118.00 8 Aug 2023 21:45, UTC 111.00 11 Sep 2023 20:43, UTC 223.00 31 Jul 2023 16:37, UTC 197.00 10 May 2023 12:16, UTC
1-Star Price 182.90 149.85 345.65 305.35
5-Star Price 70.80 77.70 133.80 118.20
Fairly Valued 15 Sep 2023 Significantly 15 Sep —— Under Valued 15 Sep 2023
Assessment
Undervalued 2023
Morningstar Rating QQQ15 Sep 2023 21:18, UTC QQQQQ15 Sep 2023 21:18, UTC QQQ16 Sep 2023 00:08, UTC QQQQ15 Sep 2023 23:35, UTC
Analyst Joshua Aguilar, Senior Equity Analyst Nicolas Owens, Equity Analyst Loredana Muharremi, Equity Analyst Matthew Donen, Equity Analyst
Capital Allocation Exemplary Exemplary Standard Standard
Price/Fair Value 0.98 0.68 1.02 0.80
Price/Sales 1.56 1.58 1.22 1.42
Price/Book 4.03 1.52 24.11 7.55
Price/Earning 12.50 20.11 11.45 —
Dividend Yield 0.28% 3.01% 1.21% 0.18%
Market Cap 125.87 Bil 109.89 Bil 19.00 Bil 159.49 Bil
52-Week Range 48.29—117.96 73.62—108.84 0.64—2.40 131.30—217.45
Investment Style Large Growth Large Value Large Growth Large Core
service in about year seven of operation, at which time an engine program may pass breakeven and
become a recurring and enviable profit stream for GE. These bespoke service contracts typically extend
25 years. We believe intangible assets are particularly critical for engine deliveries—the razor in the
razor-and-blade model. The technical knowledge needed to design and manufacture a jet engine is GE's
main source of intangible assets. This technical know-how is supported by the firm's research and
development budget, of which about one third is principally funded by the U.S. government. Other
intangible assets include the firm's patents, a long record of success, and its customer relationships
with both Boeing (primarily) and Airbus. A record of success can have a disproportionate impact in
delivery wins.
Relatedly, switching costs are strongly associated with aftermarket sales—the blade in the razor-and-
blade model. GE's switching costs are a result of the firm's engines and associated equipment's strong
integration into customers' airframes and landing systems. In the United States, aircraft engine
inspections are mandated and regulated by the Federal Aviation Administration, and unplanned
ß
downtime related to concerns about an engine's efficacy can wreak havoc for airlines in terms of time
and expense. This high cost of failure ultimately increases customer loyalty. By our count, roughly 69%
of GE's commercial aviation revenue stems from its services, which we believe represents strong
evidence of customer reliance on GE as the original equipment manufacturer. Moreover, GE's pursuit of
rate per flight hour service agreements, whereby OEMs like GE receive service payments based on flight
hours, both boosts returns and solidifies switching costs. With flight hour service agreements, GE
receives payments over the life of a contract. Additionally, because OEMs assume the maintenance risk,
firms like GE, Pratt, and Rolls Royce are incentivized to increase on-wing time. The Leap engine boasts
an industry-leading 99.97% engine dispatch reliability rate, which equates to only one delay or
cancelation every 2,500 departures. Furthermore, Leap has 6% better utilization (a value proposition of
over $2 million for airline customers) and 15% better fuel burn than its CFM56 predecessor. GE
Aerospace's operating margins exceed Pratt's by several percentage points, which demonstrates the
benefits of having a massive installed base in the aerospace industry.
After GE Aerospace, GE's competitive position fares far worse, with its other businesses facing secular
pressure. GE Power faces pricing pressures and a shifting energy mix in its end markets toward
renewables. GE Vernova (power with renewables) is a no-moat business. While Power operates in a
three-way oligopolistic market (along with Siemens and Mitsubishi), GE Renewable Energy competes in
a more fragmented industry with other wind turbine manufacturers like Vestas, Siemens, and a host of
other competitors (onshore wind revenue represents the brunt of Renewable Energy's portfolio).
Moreover, while GE Power touts its 7,000-plus gas turbine installed base and the fact that it currently
powers more than 30% of the world's power, the segment has at times fallen to number three in global
gas turbine orders by energy capacity.
Furthermore, GE was late to realize the transition from fossil fuels to renewables, which are predicted to
compete with fossil fuels subsidy-free from a levelized cost of electricity standpoint. Wind turbines don't
require the same maintenance needs as gas machines, which is where GE has traditionally made money
on its long-term service contracts. We think these cost dynamics threaten to obviate the competitive
benefits GE derives from its massive installed base in gas turbines, particularly as renewables also offer
a far more attractive and minimal carbon footprint. Under previous CEO Jeff Immelt, GE failed to
appreciate these risks, and its ill-time purchase of thermal energy provider and grid company Alstom
weighed down the segment's return on invested capital for years. Power was forced to continue
restructuring efforts to counteract this dynamic as demand for new gas orders fell to 2530 gigawatts
from 40-45 GW articulated at the start of 2017. GE Renewable Energy suffers from many of the same
competitive dynamics that plague GE Power—including even greater price competition to gain market
share and cheaper alternatives from other forms of energy, like solar—and depends heavily on
production tax credits. As such, we don't believe it's a business with a durable competitive advantage.
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Fair Value and Profit Drivers Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023
After updating our model for our aerospace demand forecast, we lift our fair value estimate to $118, but
that's due to time value of money. Our long-term view remains essentially unchanged. We've also
updated our sum-of-the-parts valuation to $118, suggesting that pricing GE yields a similar conclusion to
our DCF-derived intrinsic valuation. We still model 2023 adjusted EPS expectations of $2.42 (or 12 cents
above the high end of management’s revised range) and free cash flow of $4.6 billion, or the high end
of the guide. We value GE at 49 times our 2023 adjusted EPS, but 2023 is a down year from lost
healthcare-related earnings. We think the market is looking to 2025 when valuing GE, and we value the
firm at 20 times our 2025 adjusted EPS expectations. We think GE aerospace will trade for about $100
billion in equity value, while GE Vernova will trade for about $30 billion in equity value.
Commercial aerospace remains the most important driver of our valuation. Its fundamentals are still
strong. Most of GE's fleet of narrow bodies have yet to see their first shop visit, and travel remains a
continued priority in people's budgets. Continued evidence of pent-up demand in strong backlog and
order strength (1.2 book/bill ratio) gives us continued confidence that GE Aerospace revenue will grow
at a low-20s percentage in 2023 relative to 2022 results. We’re content with the lean tools Culp has
implemented as CEO of GE Aerospace. We think a greater focus on discrete business units and
streamlined workflows will help the aerospace business continue to expand its operating margins and
maintain them at 20% through the cycle, despite the LEAP and 9X ramps, though we expect mix
headwinds mean they will be only marginally better than 2022 levels in 2023.
We expect Vernova will benefit from the energy transition at a top-line level, as well as the Inflation
Reduction Act. We expect its profitability will improve on better project selectivity, a focus on the North
American market, and additional rightsizing. We expect that Power will maintain slightly over a 10%
segment operating profit margin through the cycle, but that Renewables will only begin to profit in
2024, eventually reaching mid-single-digit operating margins. Eventually, we think Vernova is capable of
delivering at the lower end of high-single-digit operating margins through the cycle.
Risk and Uncertainty Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023
GE's principal risk is related to COVID-19 fallout on its commercial aerospace business, including
government interventions and acceleration of infections that ultimately affect both revenue passenger
kilometers (demand) and load factors (utilization). Additional risks include GE's significant cash burn
amid pricing pressures in some of its operating businesses, including renewable energy, and its
insurance liabilities (though they've been less of a concern in recent years, given rising interest rates).
Finally, GE has large key-person risk in CEO Culp. Losing him before a successful turnaround would pose
critical headline and fundamental risk, in our view.
From an environmental, social, and governance standpoint, we think GE faces a few risks that by now
ß
are well known to investors, including government investigations into its accounting practices,
shareholder lawsuits, potential embargoes from defense sales, and the impact of the global energy
transition on GE's gas and steam turbine business (though GE exited its new coal build business and the
energy transition mostly helps it with sales of renewables). However, we think the greatest ESG risk
relates to fallout from the climate impact from aerospace engines, though we don't think this is enough
to be material, and we point out that GE is developing a next-generation sustainable engine within its
CFM Rise program. The firm has also teamed up with NASA to develop hybrid electric engine
technology to address climate issues. Given its technology leadership, we expect GE will remain ahead
of its competitors, which should ameliorate investor concerns.
Capital Allocation Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023

We assign GE an Exemplary Capital Allocation Rating. Management has done an exceptional job
bringing down leverage levels. We highly endorse its capital allocation decisions, particularly the focus
on addressing the debt and organic investments (which offer the best returns profile), as well as the
operational and cultural changes that management is driving, which we believe should meaningfully
improve returns on invested capital during our forecast. We also approve of the board's $3 billion share-
repurchase authorization in 2021. GE only deployed about $1 billion of share repurchases in 2022, and
we would have liked to have seen more then.
Our thesis continues to be an all-out bet on Larry Culp's leadership. Culp was previously CEO and
president of Danaher from 2000 to 2014. Under his stewardship, Danaher's stock rose about 465%
against the S&P 500's approximately 105% gain. Many financial and operational improvements are
already tangible three and a half years into his GE tenure. For example, GE has materially deleveraged
the balance sheet by over $100 billion. We applaud Culp for taking decisive action, particularly in selling
GE's biopharma business to his former firm Danaher for what was then a favorable price. We expect
increasing flexibility for other capital allocation priorities—most notably organic investments through
R&D and capital expenditures.
Many of Culp's lean initiatives have born fruit. For instance, in the first quarter of 2023, GE's free cash
flow flipped positive—the first time it produced positive free cash flow in the first quarter since 2015,
long before Culp took the helm. Furthermore, GE's earnings in the first half of 2023 alone have already
surpassed its earnings from the prior 2022 year, when excluding GE HealthCare's contributions. We
expect he and Vernova CEO Scott Strazik can help bring back renewables and the broader Vernova
business to profitability by the end of 2024.
GE Aerospace CFO Rahul Ghai will assume the consolidated GE CFO role on Sept. 1, 2023, taking over
from current CFO Carolina Dybeck Happe. We think GE will miss Carolina's experience, which was
uniquely suited to its difficult operating enviroment a few years back. Carolina brought a wealth of
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industrial experience, including debt reduction, working through short- and long-cycle industrials, and
use of lean in operations. While much has rightly been written about CEO Culp's contributions, we think
Dybeck Happe was the perfect partner for him during a trying time. Incoming CFO Ghai certainly has a
wealth of experience given his successful (albeit brief) tenure at Otis following its spinoff from what was
then United Technologies, but we'll wait to pass judgment as he fully immerses himself with the greater
responsibility.
The company's financials have significantly improved thanks to the disclosures worked on by outgoing
CFO Carolina Dybeck Happe and Steve Winoker and his team in investor relations. Fortunately for
investors, Winoker and his excellent team will continue on with GE Aerospace. We expect further
improvements over time. Culp has also been improving GE's culture by implementing many of the
principles he took from his time at Danaher, including a laserlike focus on the customer and use of lean
tools and workshops. We believe GE has moved past its prior record of poor stewardship that was
anchored in the Immelt era, which included opaque accounting, overly aggressive targets, a watered-
down culture that discouraged candor, and disastrous capital allocation.
Analyst Notes Archive
GE Earnings: Travel Boom Still Lifting GE’s Wings to New Heights Joshua Aguilar, Senior Equity
Analyst, 25 Jul 2023
Narrow-moat-rated General Electric crushed our second-quarter earnings estimates. Results also easily
moved past our revenue estimates. The most meaningful differences from our top-line estimates came
from renewables, led by higher grid and offshore wind equipment revenue. At the margin level,
aerospace operating profits cruised past our expectations. These exceptional results were thanks to
commercial service revenue on strong external part sales and internal shop visits. In the first half alone,
GE’s year-to-date earnings have exceeded what GE produced in its prior full-year results, excluding GE
HealthCare’s contribution.
We are pleased with these results. We lift our 2023 adjusted EPS expectations to $2.42 (or 12 cents
above the high end of management’s revised range) and free cash flow of $4.6 billion. Our more bullish
sentiment reflects a low-double-digit organic plus sales growth expectation for 2023 (maybe 50 basis
points more of sales growth than what’s implied in management’s organic guide). Consequently, we lift
our fair value estimate to $117 per share from $113 previously, in line with the stock price. While we’re
convinced GE will continue to perform strongly over the long term, and this is reflected in our estimates,
we no longer believe the stock represents a compelling value for investors. In fact, the market has now
removed its previously embedded deal limbo, meaning it’s not waiting for next year’s spinoff to assign
full credit to intrinsic value. Furthermore, the debate in the stock has mostly settled, as we glean from
even the more bearish of estimates.
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During the second quarter, total adjusted revenue (which excludes insurance revenue) rose to $15.9
billion, or a 19% organic increase, while adjusted profit margin rose to 8.8%, up 160 basis points
organically. Unsurprisingly, commercial aerospace was once again the hero and the main driver of GE’s
financial performance.
GE Earnings: Smashing Through Our Expectations, but Long-Term Outlook Remains Unchanged
Joshua Aguilar, Senior Equity Analyst, 25 Apr 2023
Narrow-moat-rated GE’s first-quarter results were superb, materially outpacing our expectations. We
were hoping to see over $13.1 billion of adjusted revenue (sale of equipment and services but excluding
insurance). GE cruised past this result with $13.7 billion of adjusted revenue, a 17% year-on-year
increase. More impressive, we were expecting about $0.00 of adjusted EPS, and GE posted 27 cents,
meaningfully over our estimate and almost double that of FactSet consensus, as we’ve been modeling
most of our earnings growth in the fourth quarter. This was an exceptional result, as adjusted EPS
during the quarter rose by 36 cents from last year’s first quarter. Perhaps most encouragingly, GE posted
its first positive free cash flow figure in the first quarter since 2015, long before CEO Larry Culp took over
the helm.
Even so, nothing in GE’s latest print materially alters our long-term view of the stock. We raise our fair
value estimate to $110 from $108 due exclusively to time value of money. Management raised the
bottom end of both its adjusted EPS (now $1.70 to $2.00) and free cash flow guidance (now $3.6 billion
to $4.2 billion), though we were already modeling toward the top end of both ranges at $1.95 and $4.1
billion, respectively. We think there’s probably some conservatism baked into these numbers, but given
the uncertain macroeconomic environment and most of the year remaining, we hesitate to move ahead
of the company’s guide, for now.
That said, demand remains very robust. In fact, it’s growing. GE’s total book to bill (orders divided by
revenue) rose to an outstanding 1.29, with renewable demand leading the way with a 1.9 ratio. Clearly,
the Inflation Reduction Act has promoted demand.
GE’s Outlook Is Sunnier Than Ever; We Raise Our Fair Value Estimate by 9% Joshua Aguilar, Senior
Equity Analyst, 10 Mar 2023
After attending GE’s 2023 outlook, we raise our fair value estimate to $108 per share from $99
previously. Our DCF-derived fair value estimate also sits in line with our multiple-derived sum of the
parts value. The primary levers for our more bullish forecast include 1) a longer tailwind from the
commercial aerospace recovery than we were previously modeling, 2) power reaching double-digit
operating margins three years sooner than we thought previously, 3) changing our mind that
renewables will reach breakeven in 2024 (two years earlier than we thought previously), and finally, 4)
slightly higher stage II growth given the longer aerospace tailwind. Offsets to our positive take include
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a) greater margin mix headwinds from the LEAP ramp (predominantly), and b) some additional
standalone corporate costs than we previously earmarked. These two variables reduced our midcycle
operating margin by 20 basis points at the consolidated level.
We continue to believe that our advantage in how we view this stock stems from our long-term horizon
rather than any short-term informational edge. In fact, the discrepancy between our assessed value and
the market price is our willingness to look past the next eight quarters where a lot of GE’s net present
value continues to lie, particularly since 2024 will reflect an inflection point in Vernova’s margins. Yet, in
the near term, we largely agree with the market’s assessment for 2023 adjusted EPS and free cash flow.
After GE’s outlook, we note that GE has fully shifted to offense with many growth opportunities that still
lie ahead. Said differently, we think the bear case is looking backward and miscalculating liabilities,
which GE is managing well, in our view. Aside from the $1.8 billion GE still owes to shore up its
insurance capital requirements with the Kansas Insurance Department (well known to the market), we
see no additional meaningful calls on shareholder capital.
GE’s Easy Share Gains Are Over, but Upside Still Remains; Investor Patience Will Be Key Joshua
Aguilar, Senior Equity Analyst, 17 Feb 2023
After reviewing its 10-K filing and additional data points, we raise our fair value for narrow-moat-rated
GE by over 13% to $100. Our latest raise once again puts us at the high end of consensus price targets
that on average, have gravitated toward the high-80s. We also retain our high uncertainty rating given
the difficulty in forecasting GE Vernova’s fundamentals.
Aside from an additional year of revenue during our explicit forecast that we expect will gravitate
toward the lower end of mid-single digits during our perpetuity value, we also lift our midcycle
operating margin by 130 basis points. The impetus for the raise came from the benefits we expect GE
Vernova will enjoy thanks to the Inflation Reduction Act. If we’re right, we expect GE will be able to one
day maintain a lower midteens operating margin through the economic cycle, all-in. And while GE
hasn’t publicly committed to this, we think its comments during its 2022 investor outlook imply that it
should be able to not only hit its high-single-digit free cash flow target in the near term, but eventually
breach into the double-digits in the back half of the decade.
However, we caution investors that the easy gains in the stock have largely gone away. In fact, pricing
GE on next year’s EV/EBITDA implies a breakup value of $91, which is little upside from the $85 GE
shares trade at the close of Feb. 15. Said differently, for GE to fully realize our fair value, it will have to
reach maintainable profitability in the back half of the decade. We think investors are giving full credit
for GE Aerospace’s franchise, which we believe is arguably the premier franchise in the entire U.S.
multi-industry category.
GE Power Surprises to the Upside; Strazik Should Continue to Drive Value at Vernova Joshua Aguilar,
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Senior Equity Analyst, 25 Jan 2023

Nothing in narrow-moat-rated General Electric’s fourth-quarter results materially alters our long-term
view of the firm. We raise our fair value by $1 to $88 due to time value of money, though we may
further adjust our assumptions when the company issues its 10-K and we hear more at its 2023 Investor
Outlook.
Full-year 2022 free cash flow of $4.8 billion slightly surpassed our expectations of $4.6 billion. While
fourth-quarter sales of $21.8 billion fell just short of our $22.3 billion projection, adjusted EPS of $1.24
easily topped our $1.13 estimate during the quarter. Segment operating profit margins rose a rousing
170 basis points, and off a difficult comparison from last year’s fourth quarter that saw aerospace return
to 20% segment operating profit margins then.
One cause of the rapid uplift this quarter was a better-than-expected performance from the power
segment, which reached a segment operating profit margin of 13.8%, and improved 710 basis points.
This was a level not seen since the fourth quarter of 2016. Though the second and fourth quarters are
seasonally strong for the power business, this result was simply exceptional, and we think it’s a
testament to the efforts led by GE Vernova CEO Scott Strazik. One thing we like is that there were
skeptical corners of the market regarding the promise of greater transactional service revenue, yet
transaction volume was one of the drivers of revenue and margins during the quarter. Price/cost and
productivity also helped power margins. We no longer consider this business in “turnaround” mode,
though we think incremental benefits are still possible, even as 2023 will prove difficult with continued
inflationary and mix headwinds related to more HA-turbine deliveries.
GE HealthCare Will Improve Its Focus, but Spinoff Unlikely to Change Near-Term GE Outlook Joshua
Aguilar, Senior Equity Analyst, 4 Jan 2023
Following the market close on Jan. 3, 2023, narrow-moat-rated General Electric spun off just over 80%
of its healthcare business. Based on comparable trading multiples, we believe the entire healthcare
business is worth somewhere between $32 billion to $33 billion in equity value. We apply a near 12
times multiple to over $3.9 billion of expected EBITDA in 2024, which yields an enterprise value of over
$46 billion. Based on its form 10 filing, GE HealthCare will assume $10.2 billion of debt and $5.2 billion
of pensions, which we subtract from our enterprise value. However, it will also enjoy a cash balance of
$1.8 billion, which we add back to yield our assumed equity value. GE will retain the remaining portion
of the healthcare business it doesn’t spin off, or just under 20%. We expect it will monetize this interest
over time. We reduce our fair value estimate to $87 per share from $122 previously to account for the
proportion of healthcare GE no longer owns.
While we don’t formally apply moat ratings to segments, we think GE HealthCare would merit a solid
narrow moat rating based primarily on switching costs and to a lesser extent intangible assets.
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Assuming an addressable market of about $84 billion, GE HealthCare, or GEHC, holds leading market
share of about 22%. It’s number one or number two in most of the categories in which it competes.
We expect the GEHC spinoff will help provide its business with a greater focus, since its management
can make its own capital allocation decisions. Importantly, however, we don’t expect GE’s stock price
will immediately rebound until the Vernova spinoff, given the significant losses in its renewables
business and investor reluctance to own an unattractive no-moat business attached to GE’s leading
aerospace franchise. K
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Competitors Price vs. Fair Value
RTX Corp RTX
Fair Value: 111.00

11 Sep 2023 20:43, UTC
200
Last Close: 75.80
150 Over Valued
Under Valued
100
50
0
2018 2019 2020 2021 2022 YTD
0.74 0.98 0.93 1.01 0.95 0.68 Price/Fair Value
-14.31 43.41 -26.72 23.15 19.78 -23.18 Total Return %
Morningstar Rating
Total Return % as of 15 Sep 2023. Last Close as of 15 Sep 2023. Fair Value as of 11 Sep 2023 20:43, UTC.
Rolls-Royce Holdings PLC RR.
Last Close: 227.40

2000 Fair Value: 223.00
31 Jul 2023 16:37, UTC
1500 Over Valued

Under Valued
1000
500
0
2018 2019 2020 2021 2022 YTD
0.25 0.25 1.17 1.07 0.89 1.02 Price/Fair Value
-0.63 -16.28 -52.55 10.45 -24.15 143.99 Total Return %
Morningstar Rating
Total Return % as of 15 Sep 2023. Last Close as of 15 Sep 2023. Fair Value as of 31 Jul 2023 16:37, UTC.
ß
Vestas Wind Systems A/S VWS
Fair Value: 197.00

10 May 2023 12:16, UTC
400
Last Close: 156.72
300 Over Valued
Under Valued
200
100
0
2018 2019 2020 2021 2022 YTD
0.86 1.11 1.86 1.14 1.15 0.80 Price/Fair Value
16.91 38.31 115.01 -30.10 1.19 -22.45 Total Return %
Morningstar Rating
Total Return % as of 15 Sep 2023. Last Close as of 15 Sep 2023. Fair Value as of 10 May 2023 12:16, UTC.
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Morningstar Historical Summary

Financials as of 30 Jun 2023
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
Revenue (USD Bil) 110 116 115 119 99 97 90 76 74 77 31 81
Revenue Growth % -23.6 5.7 -1.1 3.7 -16.9 -2.3 -7.0 -16.0 -2.2 3.2 16.4 8.6
EBITDA (USD Bil) 17.17 18.02 16.50 19.13 -0.50 -9.64 6.41 12.95 1.20 6.56 9.44 15.55
EBITDA Margin % 15.6 15.5 14.3 16.0 -0.5 -9.9 7.1 17.1 1.6 8.6 30.3 19.2
Operating Income (USD Bil) 12.35 15.85 14.63 14.18 -2.74 6.76 5.15 0.41 3.68 2.69 1.29 4.16
Operating Margin % 11.2 13.6 12.7 11.9 -2.8 7.0 5.7 0.5 5.0 3.5 4.1 5.1
Net Income (USD Bil) 13.06 15.23 -6.13 7.50 -8.48 -22.36 -4.98 5.70 -6.52 0.23 7.54 9.78
Net Margin % 11.8 13.1 -5.3 5.7 -9.0 -23.5 -6.0 6.9 -9.1 -0.1 23.5 11.6
Diluted Shares Outstanding (Mil) 1,286 1,265 1,252 1,141 1,086 1,086 1,091 1,095 1,098 1,096 1,097 1,095
Diluted Earnings Per Share (USD) 10.16 12.00 -4.96 6.00 -8.24 -20.96 -4.99 4.63 -6.16 -0.06 6.68 8.56
Dividends Per Share (USD) 6.32 7.12 7.36 7.44 6.72 2.96 0.32 0.32 0.32 0.32 0.08 0.24
Valuation as of 31 Aug 2023

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Price/Sales 2.0 1.8 2.2 2.5 1.3 0.5 0.8 1.1 1.3 1.2 1.5 1.5
Price/Earnings 20.2 17.1 61.0 36.4 20.3 -2.2 555.6 27.7 71.4 -17.8 15.2 12.4
Price/Cash Flow 10.2 9.3 12.8 60.6 29.9 9.3 9.9 14.1 22.7 23.9 19.4 20.4
Dividend Yield % 2.82 3.52 2.95 2.94 4.81 4.89 0.36 0.37 0.34 0.38 0.29 0.28
Price/Book 2.3 1.9 2.6 3.4 2.0 2.1 3.5 2.8 2.8 2.9 3.8 4.0
EV/EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Operating Performance / Profitability as of 30 Jun 2023
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
ROA % 1.9 2.3 -1.1 1.6 -2.4 -6.7 -1.9 2.0 -3.0 0.0 4.2 5.4
ROE % 10.3 11.8 -5.4 7.9 -13.5 -52.4 -18.4 16.4 -17.8 -0.2 21.7 28.6
ROIC % 2.9 3.9 -1.2 3.8 -2.8 -12.1 -3.5 6.7 -5.8 0.9 12.1 16.8
Asset Turnover 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.2 0.5
Financial Leverage
Fiscal Year, ends 31 Dec 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Debt/Capital % 65.0 59.8 59.9 58.1 66.2 74.6 70.4 67.4 45.5 46.0 39.0 —
Equity/Assets % 19.9 19.6 19.9 20.8 15.2 10.0 10.7 13.9 20.3 19.4 19.1 —
Total Debt/EBITDA 22.3 14.5 12.0 7.1 -271.4 -10.7 14.2 6.0 31.6 5.3 2.3 —
EBITDA/Interest Expense 6.0 6.4 4.8 3.8 -0.1 -2.0 2.2 3.7 0.6 4.1 17.6 11.2
Morningstar Analyst Historical/Forecast Summary as of 07 Aug 2023

Financials Estimates Forward Valuation Estimates
2021 2022 2023 2024 2025
Fiscal Year, ends 12-31-2022 2021 2022 2023 2024 2025
Price/Sales 1.4 1.2 1.9 1.8 1.7
Revenue (USD Mil) 74,196 76,555 66,110 70,196 75,989 Price/Earnings 39.6 25.0 47.7 23.6 19.5
Revenue Growth % -2.2 3.2 -13.6 6.2 8.3 Price/Cash Flow -219.5 20.9 26.1 14.8 14.2
EBITDA (USD Mil) 8,181 8,555 7,659 10,571 12,006 Dividend Yield % 0.4 0.5 0.3 0.3 0.3
EBITDA Margin % 11.0 11.2 11.6 15.1 15.8 Price/Book 2.0 2.0 3.2 2.8 2.4
EV/EBITDA 16.7 12.0 16.2 11.7 10.3
Operating Income (USD Mil) 6,087 5,426 6,335 9,052 10,281
Operating Margin % 8.2 7.1 9.6 12.9 13.5
Net Income (USD Mil) 2,042 2,879 2,657 5,362 6,485
Net Margin % 2.8 3.8 4.0 7.6 8.5
Diluted Shares Outstanding (Mil) 1,098 1,101 1,097 1,097 1,097
Diluted Earnings Per Share(USD) 1.86 2.61 2.42 4.89 5.91
Dividends Per Share(USD) 0.32 0.32 0.32 0.32 0.32
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ESG Risk Rating Breakdown
Exposure Subject Subindustry (62.0) u Exposure represents a company’s vulnerability to ESG

Company Exposure1 67.7 risks driven by their business model
67.7
u Exposure is assessed at the Subindustry level and then
– Manageable Risk 61.3 High
2 0 55+ specified at the company level
Unmanageable Risk 6.3
Low Medium High u Scoring ranges from 0-55+ with categories of low, me-
dium, and high-risk exposure
Management
u Management measures a company’s ability to manage
Manageable Risk 61.3 ESG risks through its commitments and actions
44.2%
– Managed Risk3 27.1 Average
u Management assesses a company's efficiency on ESG
Management Gap4 34.2 100 0 programs, practices, and policies

Strong Average Weak u Management score ranges from 0-100% showing how
Overall Unmanaged Risk 40.6 much manageable risk a company is managing
ESG Risk Rating ESG Risk Rating Assessment5

40.55
Severe
Negligible Low Medium High Severe ESG Risk Rating is of Sep 06, 2023. Highest Controversy Level is as of Sep 08,
2023. Sustainalytics Subindustry: Conglomerates. Sustainalytics provides
ESG Risk Ratings measure the degree to which a company’s value is impacted by environmental, social, and governance Morningstar with company ESG ratings and metrics on a monthly basis and
risks, by evaluating the company’s ability to manage the ESG risks it faces. as such, the ratings in Morningstar may not necessarily reflect current
Sustainalytics’ scores for the company. For the most up to date rating and
1. A company's Exposure to material ESG issues 2. Unmanageable Risk refers to risks that are inherent to a particular business model that cannot be managed by more information, please visit: sustainalytics.com/esg-ratings/.
programs or initiatives 3. Managed Risk = Manageable Risk multiplied by a Management score of 44.2% 4. Management Gap assesses risks that are not
managed, but are considered manageable 5. ESG Risk Rating Assessment = Overall Unmanaged Risk = Management Gap plus Unmanageable Risk
Peer Analysis 06 Sep 2023 Peers are selected from the company's Sustainalytics-defined Subindustry and are displayed based on the closest market cap values
Company Name Exposure Management ESG Risk Rating
General Electric Co 67.7 | High 0 55+ 44.2 | Average 100 0 40.6 | Severe 0 40+
RTX Corp 59.4 | High 0 55+ 44.5 | Average 100 0 35.4 | High 0 40+
Rolls-Royce Holdings PLC 61.3 | High 0 55+ 65.7 | Strong 100 0 24.8 | Medium 0 40+
Vestas Wind Systems A/S 41.4 | Medium 0 55+ 56.6 | Strong 100 0 19.0 | Low 0 40+
Mitsubishi Heavy Industries Ltd 50.4 | Medium 0 55+ 43.8 | Average 100 0 29.3 | Medium 0 40+
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Appendix
Historical Morningstar Rating
General Electric Co GE 15 Sep 2023 21:18, UTC
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
- - - QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQQ QQQ
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QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ QQQQ QQQQ QQQQQ QQQQ QQQQ
RTX Corp RTX 15 Sep 2023 21:18, UTC
- - - QQQQQ QQQQ QQQQ QQQ QQQQ QQQ QQQ QQQ QQQ
QQQ QQQ QQQ QQQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ
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QQQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
Rolls-Royce Holdings PLC RR. 16 Sep 2023 00:08, UTC
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Vestas Wind Systems A/S VWS 15 Sep 2023 23:35, UTC
- - - QQQQ QQQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
QQQ QQQ QQQQ QQQQ QQQ QQQ QQQ QQQ QQQ QQQ QQ QQQ
QQQ QQ Q QQ QQ QQ QQ QQ Q Q QQ Q
Q Q QQ Q QQ QQ QQQ QQQ QQQ QQQQ QQQ QQQ
QQQ QQQ QQQ QQQ QQQQ QQQ QQQ QQQ QQQ QQQ QQQ QQQ
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Research Methodology for Valuing Companies
Overview turns on invested capital (or ROIC) over and above our es- rive our annual free cash flow forecast.
At the heart of our valuation system is a detailed projec- timate of a firm’s cost of capital, or weighted average
Stage II: Fade
tion of a company’s future cash flows, resulting from our cost of capital (or WACC). Without a moat, profits are
The second stage of our model is the period it will take
analysts’ research. Analysts create custom industry and more susceptible to competition. We have identified five
the company’s return on new invested capital—the re-
company assumptions to feed income statement, balance sources of economic moats: intangible assets, switching
turn on capital of the next dollar invested (“RONIC”)—to
sheet, and capital investment assumptions into our glob- costs, network effect, cost advantage, and efficient scale.
decline (or rise) to its cost of capital. During the Stage II
ally standardized, proprietary discounted cash flow, or
Companies with a narrow moat are those we believe are period, we use a formula to approximate cash flows in
DCF, modeling templates. We use scenario analysis, inde-
more likely than not to achieve normalized excess returns lieu of explicitly modeling the income statement, balance
pth competitive advantage analysis, and a variety of other
for at least the next 10 years. Wide-moat companies are sheet, and cash flow statement as we do in Stage I. The
analytical tools to augment this process. Moreover, we
those in which we have very high confidence that excess length of the second stage depends on the strength of
think analyzing valuation through discounted cash flows
returns will remain for 10 years, with excess returns more the company’s economic moat. We forecast this period to
presents a better lens for viewing cyclical companies,
likely than not to remain for at least 20 years. The longer last anywhere from one year (for companies with no eco-
high-growth firms, businesses with finite lives (e.g.,
a firm generates economic profits, the higher its intrinsic nomic moat) to 10–15 years or more (for wide-moat com-
mines), or companies expected to generate negative
value. We believe low-quality, no-moat companies will panies). During this period, cash flows are forecast using
earnings over the next few years. That said, we don’t dis-
see their normalized returns gravitate toward the firm’s four assumptions: an average growth rate for EBI over the
miss multiples altogether but rather use them as support-
cost of capital more quickly than companies with moats. period, a normalized investment rate, average return on
ing cross-checks for our DCF-based fair value estimates.
new invested capital (RONIC), and the number of years
We also acknowledge that DCF models offer their own
When considering a company's moat, we also assess until perpetuity, when excess returns cease. The invest-
challenges (including a potential proliferation of estim-
whether there is a substantial threat of value destruction, ment rate and return on new invested capital decline un-
ated inputs and the possibility that the method may miss
stemming from risks related to ESG, industry disruption, til a perpetuity value is calculated. In the case of firms
shortterm market-price movements), but we believe these
financial health, or other idiosyncratic issues. In this con- that do not earn their cost of capital, we assume marginal
negatives are mitigated by deep analysis and our
text, a risk is considered potentially value destructive if its ROICs rise to the firm’s cost of capital (usually attribut-
longterm approach.
occurrence would eliminate a firm’s economic profit on a able to less reinvestment), and we may truncate the
cumulative or midcycle basis. If we deem the probability second stage.
Morningstar’s equity research group (”we,” “our”) be-
lieves that a company’s intrinsic worth results from the of occurrence sufficiently high, we would not characterize
the company as possessing an economic moat. Stage III: Perpetuity
future cash flows it can generate. The Morningstar Rating
Once a company’s marginal ROIC hits its cost of capital,
for stocks identifies stocks trading at a discount or premi-
2. Estimated Fair Value we calculate a continuing value, using a standard per-
um to their intrinsic worth—or fair value estimate, in
Combining our analysts’ financial forecasts with the petuity formula. At perpetuity, we assume that any
Morningstar terminology. Five-star stocks sell for the
firm’s economic moat helps us assess how long returns growth or decline or investment in the business neither
biggest risk adjusted discount to their fair values, where-
on invested capital are likely to exceed the firm’s cost of creates nor destroys value and that any new investment
as 1-star stocks trade at premiums to their intrinsic worth.
capital. Returns of firms with a wide economic moat rat- provides a return in line with estimated WACC.
Four key components drive the Morningstar rating: (1) our ing are assumed to fade to the perpetuity period over a
longer period of time than the returns of narrow-moat Because a dollar earned today is worth more than a dollar
assessment of the firm’s economic moat, (2) our estimate
firms, and both will fade slower than no-moat firms, in- earned tomorrow, we discount our projections of cash
of the stock’s fair value, (3) our uncertainty around that
creasing our estimate of their intrinsic value. flows in stages I, II, and III to arrive at a total present
fair value estimate and (4) the current market price. This
value of expected future cash flows. Because we are
process ultimately culminates in our singlepoint star rat-
Our model is divided into three distinct stages: modeling free cash flow to the firm—representing cash
ing.
available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
1. Economic Moat Stage I: Explicit Forecast
weighted average of the costs of equity, debt, and pre-
The concept of an economic moat plays a vital role not In this stage, which can last five to 10 years, analysts
ferred stock (and any other funding sources), using ex-
only in our qualitative assessment of a firm’s long-term make full financial statement forecasts, including items
pected future proportionate long-term, market-value
investment potential, but also in the actual calculation of such as revenue, profit margins, tax rates, changes in
weights.
our fair value estimates. An economic moat is a structural workingcapital accounts, and capital spending. Based on
feature that allows a firm to sustain excess profits over a these projections, we calculate earnings before interest,
3. Uncertainty Around That Fair Value Estimate
long period of time. We define economic profits as re- after taxes (EBI) and the net new investment (NNI) to de-
Morningstar’s Uncertainty Rating is designed to capture
the range of potential outcomes for a company’s intrinsic
Morningstar Equity Research Star Rating Methodology
value. This rating is used to assign the margin of safety
required before investing, which in turn explicitly drives
our stock star rating system. The Uncertainty Rating is
aimed at identifying the confidence we should have in as-
signing a fair value estimate for a given stock.
Our Uncertainty Rating is meant to take into account any-

thing that can increase the potential dispersion of future
outcomes for the intrinsic value of a company, and any-
ß
thing that can affect our ability to accurately predict Morningstar Equity Research Star Rating Methodology
these outcomes. The rating begins with a suggested rat-
ing produced by a quantitative process based on the trail-
ing 12-month standard deviation of daily stock returns.
An analyst overlay is then applied, with analysts using
the suggested rating, historical rating data, and their own
knowledge of the company to inform them as they make
the final Uncertainty Rating decision. Ultimately, the rat-
ing decision rests with the analyst. Analysts take into ac-
count many characteristics when making their final de-
cision, including cyclical factors, operational and financial
factors such as leverage, company-specific events, ESG
risks, and anything else that might increase the potential
dispersion of future outcomes and our ability to estimate
those outcomes.
Our recommended margin of safety—the discount to fair

value demanded before we’d recommend buying or
selling the stock—widens as our uncertainty of the es-
timated value of the equity increases. The more uncertain
we are about the potential dispersion of outcomes, the
greater the discount we require relative to our estimate of
the value of the firm before we would recommend the
purchase of the shares. In addition, the Uncertainty Rat-
ing provides guidance in portfolio construction based on
risk tolerance. Once we determine the fair value estimate of a stock, we justed return is highly likely over a multiyear time frame.
compare it with the stock’s current market price on a Scenario analysis developed by our analysts indicates
Our Uncertainty Ratings are: Low, Medium, High, Very daily basis, and the star rating is automatically re-calcu- that the current market price represents an excessively
High, and Extreme. lated at the market close on every day the market on pessimistic outlook, limiting downside risk and maximiz-
which the stock is listed is open. Our analysts keep close ing upside potential.
Margin of Safety
tabs on the companies they follow, and, based on thor-
Qualitative Analysis
QRating ough and ongoing analysis, raise or lower their fair value QQQQ We believe appreciation beyond a fair risk-ad-
Uncertainty Ratings QQQQQRating
estimates as warranted. justed return is likely.
Low 20% Discount 25% Premium
Medium 30% Discount 35% Premium QQQ Indicates our belief that investors are likely to re-
Please note, there is no predefined distribution of stars.
High 40% Discount 55% Premium ceive a fair risk-adjusted return (approximately cost of
That is, the percentage of stocks that earn 5 stars can
Very High 50% Discount 75% Premium equity).
fluctuate daily, so the star ratings, in the aggregate, can
Extreme 75% Discount 300% Premium
serve as a gauge of the broader market’s valuation. When
there are many 5-star stocks, the stock market as a whole QQ We believe investors are likely to receive a less than
Our uncertainty rating is based on the interquartile range, fair risk-adjusted return.
is more undervalued, in our opinion, than when very few
or the middle 50% of potential outcomes, covering the
companies garner our highest rating.
25th percentile–75th percentile. This means that when a Q Indicates a high probability of undesirable risk-adjus-
stock hits 5 stars, we expect there is a 75% chance that ted returns from the current market price over a multiyear
We expect that if our base-case assumptions are true the
the intrinsic value of that stock lies above the current time frame, based on our analysis. Scenario analysis by
market price will converge on our fair value estimate over
market price. Similarly, when a stock hits 1 star, we ex- our analysts indicates that the market is pricing in an ex-
time generally within three years (although it is im-
pect there is a 75% chance that the intrinsic value of that cessively optimistic outlook, limiting upside potential and
possible to predict the exact time frame in which market
stock lies below the current market price. leaving the investor exposed to Capital loss.
prices may adjust).
4. Market Price Our star ratings are guideposts to a broad audience and Other Definitions
The market prices used in this analysis and noted in the individuals must consider their own specific investment Last Price: Price of the stock as of the close of the mar-
report come from exchange on which the stock is listed goals, risk tolerance, tax situation, time horizon, income ket of the last trading day before date of the report.
which we believe is a reliable source. needs, and complete investment portfolio, among other
factors. Capital Allocation Rating: Our Capital Allocation (or
For more details about our methodology, please go to Stewardship) Rating represents our assessment of the
https://shareholders.morningstar.com The Morningstar Star Ratings for stocks are defined be- quality of management’s capital allocation, with particu-
low: lar emphasis on the firm’s balance sheet, investments,
Morningstar Star Rating for Stocks QQQQQ We believe appreciation beyond a fair risk ad- and shareholder distributions. Analysts consider compan-
ß
ies’ investment strategy and valuation, balance sheet starting at zero (no risk) with lower scores representing mendations made herein may not be suitable for all in-
management, and dividend and share buyback policies. less unmanaged risk and, for 95% of cases, the unman- vestors: recipients must exercise their own independent
Corporate governance factors are only considered if they aged ESG Risk score is below 50. judgment as to the suitability of such investments and re-
are likely to materially impact shareholder value, though commendations in the light of their own investment ob-
either the balance sheet, investment, or shareholder dis- Based on their quantitative scores, companies are jectives, experience, taxation status and financial posi-
tributions. Analysts assign one of three ratings: "Exem- grouped into one of five Risk Categories (negligible, low, tion.
plary", "Standard", or "Poor". Analysts judge Capital Alloc- medium, high, severe). These risk categories are absolute,
ation from an equity holder’s perspective. Ratings are de- meaning that a ‘high risk’ assessment reflects a compar- The information, data, analyses and opinions presented
termined on a forward looking and absolute basis. The able degree of unmanaged ESG risk across all subindus- herein are not warranted to be accurate, correct, com-
Standard rating is most common as most managers will tries covered. plete or timely. Unless otherwise provided in a separate
exhibit neither exceptionally strong nor poor capital alloc- agreement, neither Morningstar, Inc. or the Equity Re-
ation. The ESG Risk Rating Assessment is a visual representa- search Group represents that the report contents meet all
tion of Sustainalytics ESG Risk Categories on a 1 to 5 of the presentation and/or disclosure standards applic-
Capital Allocation (or Stewardship) analysis published pri- scale. Companies with Negligible Risk = 5 Globes, Low able in the jurisdiction the recipient is located.
or to Dec. 9, 2020, was determined using a different pro- Risk = 4, Medium Risk = 3 Globes, High Risk = 2 Globes,
cess. Beyond investment strategy, financial leverage, and Severe Risk = 1 Globe. For more information, please visit Except as otherwise required by law or provided for in a
dividend and share buyback policies, analysts also con- sustainalytics.com/esg-ratings/ separate agreement, the analyst, Morningstar, Inc. and
sidered execution, compensation, related party transac- the Equity Research Group and their officers, directors
tions, and accounting practices in the rating. Ratings should not be used as the sole basis in evaluating and employees shall not be responsible or liable for any
a company or security. Ratings involve unknown risks and trading decisions, damages or other losses resulting from,
Capital Allocation Rating: Our Capital Allocation (or uncertainties which may cause our expectations not to or related to, the information, data, analyses or opinions
Stewardship) Rating represents our assessment of the occur or to differ significantly from what was expected within the report. The Equity Research Group encourages
quality of management’s capital allocation, with particu- and should not be considered an offer or solicitation to recipients recipients of this report to read all relevant is-
lar emphasis on the firm’s balance sheet, investments, buy or sell a security. sue documents (e.g., prospectus) pertaining to the secur-
and shareholder distributions. Analysts consider compan- ity concerned, including without limitation, information
ies’ investment strategy and valuation, balance sheet Risk Warning relevant to its investment objectives, risks, and costs be-
management, and dividend and share buyback policies. Please note that investments in securities are subject to fore making an in vestment decision and when deemed
Corporate governance factors are only considered if they market and other risks and there is no assurance or guar- necessary, to seek the advice of a legal, tax, and/or ac-
are likely to materially impact shareholder value, though antee that the intended investment objectives will be counting professional.
either the balance sheet, investment, or shareholder dis- achieved. Past performance of a security may or may not
tributions. Analysts assign one of three ratings: "Exem- be sustained in future and is no indication of future per- The Report and its contents are not directed to, or inten-
plary", "Standard", or "Poor". Analysts judge Capital Alloc- formance. A security investment return and an investor’s ded for distribution to or use by, any person or entity who
ation from an equity holder’s perspective. Ratings are de- principal value will fluctuate so that, when redeemed, an is a citizen or resident of or located in any locality, state,
termined on a forward looking and absolute basis. The investor’s shares may be worth more or less than their country or other jurisdiction where such distribution, pub-
Standard rating is most common as most managers will original cost. A security’s current investment performance lication, availability or use would be contrary to law or
exhibit neither exceptionally strong nor poor capital alloc- may be lower or higher than the investment performance regulation or which would subject Morningstar, Inc. or its
ation. noted within the report. Morningstar’s Uncertainty Rating affiliates to any registration or licensing requirements in
serves as a useful data point with respect to sensitivity such jurisdiction.
Capital Allocation (or Stewardship) analysis published pri- analysis of the assumptions used in our determining a fair
or to Dec. 9, 2020, was determined using a different pro- value price. Where this report is made available in a language other
cess. Beyond investment strategy, financial leverage, and than English and in the case of inconsistencies between
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Morningstar Equity Analyst Report | Report as of 16 Sep 2023 04:25, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 21

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Price vs. Fair Value

Fair Value: 118.00

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Economic Moat Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Fair Value Fair Value Fair Value

Economic Moat Narrow Wide Narrow None

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Capital Allocation Joshua Aguilar, Senior Equity Analyst, 8 Aug 2023

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Analyst Notes Archive

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Senior Equity Analyst, 25 Jan 2023

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Competitors Price vs. Fair Value

RTX Corp RTX

Fair Value: 111.00

Rolls-Royce Holdings PLC RR.

Last Close: 227.40

1500 Over Valued

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Vestas Wind Systems A/S VWS

Fair Value: 197.00

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

Morningstar Historical Summary

Valuation as of 31 Aug 2023

Morningstar Analyst Historical/Forecast Summary as of 07 Aug 2023

General Electric Co GE QQQ 15 Sep 2023 21:18, UTC

ESG Risk Rating Breakdown

Exposure Subject Subindustry (62.0) u Exposure represents a company’s vulnerability to ESG

dium, and high-risk exposure

Management Gap4 34.2 100 0 programs, practices, and policies

Overall Unmanaged Risk 40.6 much manageable risk a company is managing

ESG Risk Rating ESG Risk Rating Assessment5

RTX Corp RTX 15 Sep 2023 21:18, UTC

Rolls-Royce Holdings PLC RR. 16 Sep 2023 00:08, UTC

Vestas Wind Systems A/S VWS 15 Sep 2023 23:35, UTC

Research Methodology for Valuing Companies

Our Uncertainty Rating is meant to take into account any-

Research Methodology for Valuing Companies

Our recommended margin of safety—the discount to fair

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

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