After Earnings, Is GE Aerospace Stock a Buy, a Sell, or Fairly Valued?

GE Aerospace GE released its first-quarter earnings report on April 22. Here’s Morningstar’s take on GE Aerospace’s earnings and stock.

Key Morningstar Metrics for GE Aerospace

• Fair Value Estimate: $198.00
• Morningstar Rating: ★★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of GE Aerospace’s Q1 Earnings

• GE has committed to returning approximately 70% of “available cash” (interpreted as free cash flow after R&D) to shareholders through dividends and share buybacks, supporting a strong capital return framework.
• We forecast substantial cash generation over the coming decades, providing a solid foundation for sustained shareholder returns even as shares have appeared fairly valued for much of the past year.
• GE’s fair value should grow roughly in line with its cost of equity (around 9% per year), and we expect dividend growth to outpace that rate over the next several years.
• Even with a low margin of safety at current valuations, GE’s strong aerospace franchise and disciplined capital allocation suggest the potential for low double-digit annual total returns.

Fair Value Estimate for GE Aerospace

With its 3-star rating, we believe GE Aerospace’s stock is fairly valued compared with our long-term fair value estimate of $198 per share, representing an enterprise value/2025 EBITDA ratio of nearly 22 times. With GE’s engines powering nearly three fourths of global commercial flights, the biggest profit driver for the company is simply more airplanes continuing to take off and land.

Given its portfolio of newer engines entering service, we see decades of sales and eventual profitability growth from manufacturing new engines in the medium to long term, while the company’s older workhorse engines should still provide over a decade of healthy profits, primarily from aftermarket engine services. We forecast 14% compound revenue growth from manufacturing over the next decade. In the larger commercial aftermarket business, we see 6.2% compound revenue growth over 10 years, but with improving margins over time. On the whole, including the defense and propulsion segment, we forecast 8.4% compound revenue growth for GE Aerospace through 2034.

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Economic Moat Rating

GE Aerospace meets our highest standard of a wide-moat business and was the crown jewel of the GE conglomerate. We believe it will outearn its cost of capital by a comfortable margin for at least the coming 20 years. We assign GE Aerospace a wide economic moat rating based on switching costs and intangible assets stemming from its massive installed base of aircraft engines and the complex technical know-how it takes to design, produce, and maintain them.

GE competes in virtual duopolies in both the wide-body (twin-aisle) and narrow-body (single-aisle) jet engine markets against Rolls-Royce and Pratt & Whitney, respectively. Crucial to GE Aerospace’s moat is the fact that turbine engines typically fly for more than 20 years, and the company’s commercial and engine services business (representing about 75% of total revenue) makes 70% of that revenue from servicing its engines. This means that GE Aerospace alone commands approximately 40% of the global engine maintenance, repair, and overhaul market, using Oliver Wyman’s MRO market forecasts.

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Financial Strength

As of year-end 2024, and accounting for the spinoff of GE Vernova, GE Aerospace’s net debt amounted to just $4.6 billion on a $120 billion balance sheet. GE’s gross debt of $19 billion comes in under 2 times EBITDA coverage and lower than many aerospace peers.

We expect GE Aerospace’s EBITDA to grow and think the company’s credit ratings are likely to improve over time. Its over $40 billion securities portfolio is spoken for as securing the similarly valued liabilities of the legacy long-term-care insurance portfolio. Only in an improbable scenario would we foresee the insurance book draining GE Aerospace of resources. We expect GE Aerospace will opportunistically wind down or dispose of its real estate and long-term-care insurance portfolios, the last remnants of conglomerate GE still on the books. Until then, a remote financial risk remains, should payouts from long-term-care policies outstrip the reserves GE has put aside to cover them.

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Risk and Uncertainty

We assign GE Aerospace a Medium Uncertainty Rating. The company bears some remote financial risk and ongoing operational risk to its manufacturing and service business.

More important to the core business are two operational risks. Complex manufacturing is subject to supply chain risk in the form of the materials needed to build or service an engine as well as the people who do the work. Supply chain bottlenecks or disruption of the workforce could mar the company’s revenue and profitability in one or more product lines almost at anytime.

Read more about GE Aerospace’s fair value estimate.

GE Bulls Say

• Bears vastly underestimate the incremental profits GE will make from operating leverage as commercial aerospace fully recovers and its Leap engine aftermarket program enters its profitable phase.
• The Leap engine is installed on a growing majority of the popular Airbus A320neo family, compounding GE’s prospects for decades of profitable aftermarket revenue from its large installed fleet of engines.
• Even the fleet of older engines like the GE90, which went into service in 1995 and powers most Boeing 777s, has yet to see most of its shop visits to GE

GE Bears Say

• Burgeoning demand for its engines could place GE Aerospace’s manufacturing and supply chain under disruptive strain, not just frustrating customers but hampering efficiency.
• Engines sold with long-term service contracts effectively transfer risk to the manufacturer for its performance over time, which can result in higher-than-anticipated maintenance costs and mar the profitability of the program.
• A faint risk remains that the reserves for GE’s legacy long-term-care reinsurance will be exhausted and drain cash flow.

This article was compiled by Jacqueline Walker.