VALUATION HIGHLIGHTS
- Commercial Engines & Services constitute 80% of the Trefis price estimate for General Electric's stock.
- Defense & Propulsion Technologies constitute 9% of the Trefis price estimate for General Electric's stock.
WHAT HAS CHANGED?
- GE Stock Performance In Recent Years
The changes in GE stock over the recent years have been far from consistent. Returns for the stock were 10% in 2021, -11% in 2022, 94% in 2023, and 65% in 2024.
In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that GE underperformed the S&P in 2021.
- Latest Earnings
GE's Q4 2024 results were above the street estimates. The company reported revenue of $10.8 billion, up 14% y-o-y. The bottom line of $1.32 on a per-share and adjusted basis was up a solid 103% y-o-y.
- GE Vernova Spin-off
General Electric completed the final phase of its spinoffs into three separate companies on Tuesday, April 2, 2024, with GE Vernova splitting from GE Aerospace.
GE Vernova is now the new standalone energy company, with GE Aerospace focused on the company's aviation technology products.
GE first announced its restructuring plans in 2021, and GE Healthcare Technologies was spun off in 2023.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are the key drivers of GE's value that present opportunities for upside or downside to our price estimate:
GE's Commercial Engines Margin Growth
- GE's Commercial Engines & Services EBITDA Margin:
While GE's commercial engines and services profit margin experienced a slight dip from 24.7% in 2022 to 24.3% in 2024, our projections anticipate a significant rise to over 32% by 2031. If GE can successfully leverage improved pricing and product mix to further enhance margins by an additional 5 percentage points by the end of our review period, this could lead to a 10% increase in our GE price estimate. Conversely, if rising operating costs constrain margin growth, keeping them around the 24% level, we foresee a potential 15% downside to our current price estimate.
BUSINESS SUMMARY
Once a global leader in diversified infrastructure and financial services, General Electric (GE) underwent a significant transformation. Earlier, it used to generate revenue from businesses spanning aircraft engines, power generation turbines, and medical imaging.
Starting in 2015, GE embarked on a strategy to become a more focused industrial company, significantly reducing its financial services arm, GE Capital, through asset disposals like the sale of most real estate portfolios to Blackstone.
However, it retained key parts of GE Capital, including Aviation Services, Energy Financial Services, and Healthcare Equipment Finance. That same year, GE also acquired Alstom SA's energy business and launched GE Digital to consolidate its technology initiatives and compete in the digital landscape.
By 2018, GE announced a further streamlining to concentrate on its Aviation, Power, and Renewable Energy segments, aiming to improve its balance sheet. Ultimately, GE separated into three distinct publicly traded companies. The Healthcare division spun off in early 2023, followed by the Energy business in early 2024. Today, GE Aerospace stands as the direct successor to the original conglomerate, continuing to trade under the 'GE' ticker.
SOURCES OF VALUE
Commercial engines segment set to grow, driven by growth in global air travel
In 2024, GE Aerospace's commercial engines division generated approximately 74% of the company's total revenue. Looking ahead to March 2025 and beyond, GE Aerospace anticipates its aviation market share will grow, fueled by rising air travel demand and sustained strong interest in its efficient LEAP engines. This robust order backlog, coupled with the LEAP engine's continued efficiency, is projected to drive segment margin expansion and enhance overall profitability for GE Aerospace.
KEY TRENDS
Upcycle in the global commercial aerospace sector
Fueled by a resurgence in global economic activity, expanding international trade, and increasing globalization, global airline passenger traffic has experienced robust growth in recent years. This surge in demand for air travel is also expected to boost airline profits following the challenges of the pandemic.
Consequently, airlines are now placing significant orders for new aircraft, leading major manufacturers like Boeing and Airbus to ramp up their production. Boeing forecasts a near doubling of the global commercial airplane fleet from approximately 26,000 in 2019 to around 50,000 by 2040.
This substantial increase in commercial airplane deliveries will inevitably drive higher demand for aircraft engines and components. As a leading manufacturer in this space, GE Aerospace is well-positioned to capitalize on this positive upswing in the global commercial aviation market.
