The deep dive General Electric Company (NYSE:GE) has made into the realm of tech continues. But will GE stock ever be appraised with tech valuations? An argument can be made that it should.
On Tuesday, the Fairfield, Conn.-based industrial conglomerate announced plans to acquire two European 3D printing companies, spending a combined $1.4 billion on Swedish-based Arcam AB and Germany’s SLM Solutions Group AG.
But what does General Electric know about 3D printing? And will GE stock respond favorably?
General Electric is entering a crowded space, which is already dominated by the likes of 3D Systems Corporation (NYSE:DDD) and Stratasys Ltd. (NASDAQ:SSYS). Add in the fact that HP Inc (NYSE:HPQ) has just entered the market, and General Electric has a steep uphill climb.
But its acquisition is not for the reason you think.
While these 3D printing incumbents, especially 3D Systems, have yet to show they can turn a profit this way, General Electric is not entering that business. Instead, it is looking to speed up its manufacturing capabilities by looking into more innovative ways of building jets, aircraft engines and other components.
GE Stock’s 3D Plan
The fact that both Arcam and SLM Solutions manufacture machines can print metal parts used in aircraft turbines give General Electric an immediate advantage over its peers. And the value it creates by reducing its manufacturing costs will be reflected in GE stock.
Chairman and Chief Executive Jeff Immelt continues to deliver on his promise of diversifying GE’s manufacturing capabilities. And it would seem 3D printing, or additive manufacturing, is the next frontier.
In that regard, Immelt said, “[3D printing] will drive new levels of productivity for GE including a wide array of additive manufacturing customers, and for the industrial world.”
Essentially, General Electric is raising the stakes on industrial competitors like Honeywell International Inc. (NYSE: HON) and United Technologies Corporation (NYSE: UTX) as opposed to tackling, say, Hewlett-Packard in its own domain.
And this should bode well for GE stock, which has a consensus buy rating and an average 12-month target of $34, suggesting 8% gains from current levels.
At the time of publication, Richard Saintvilus did not hold any stock in the companies mentioned.
