Does GE Aerospace Stock Have More Upside Potential After A 70% Rise This Year?

GE Aerospace (NYSE: GE) recently reported its Q2 results, with revenues missing but earnings well above the street estimates. The company reported adjusted revenue of $8.2 billion and adjusted earnings of $1.20 per share, compared to the consensus estimates of $8.4 billion and $0.98, respectively. GE stock has risen 6% in a week following the Q2 beat. It is now up a stellar 70% this year. Despite its large move, we think GE stock still has more room for growth, as discussed below. In this note, we look at GE Aerospace’s stock performance, key takeaways from its recent results, and valuation.

Firstly, looking at its stock performance, GE stock has seen extremely strong gains of 3x from levels of $55 in early January 2021 to around $170 now, vs. an increase of about 45% for the S&P 500 over this period. However, the increase in GE stock has been far from consistent. Returns for the stock were 10% in 2021, -11% in 2022, and 96% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that GE underperformed the S&P in 2021.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for other heavyweights in the Industrials sector, including CAT, UNP, and RTX, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GE face a similar situation as it did in 2021 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, GE stock looks like it has more room for growth. We estimate General Electric’s Valuation to be $190 per share, reflecting over 10% upside from its current levels of around $170.

General Electric’s revenue of $9.1 billion (GAAP) was up 4% y-o-y, driven by higher order flows. The company’s total orders of $11.2 billion, was up 18% y-o-y. The company saw its adjusted profit margin expand 560 bps y-o-y to 23.1% in Q2, vs. 17.5% in the year-ago period. Higher revenues and margin expansion resulted in solid earnings of $1.20 on a per-share and adjusted basis, reflecting a significant 62% rise from the $0.74 figure in the prior year period. Looking forward, the company expects its sales to rise in the high-single-digits in 2024, and it expects adjusted earnings per share to be in the range of $3.95 and $4.20.

Overall, GE posted a solid Q2 and a strong demand outlook clubbed with improving margins should bode well for the company. GE Aerospace has undergone a significant restructuring. It had split its healthcare business last year and separated its renewable energy and power business earlier this year. After spinning off its other businesses, GE Aerospace can look forward to robust earnings growth in coming years and a healthy balance sheet.

While GE stock looks like it may see higher levels, it is helpful to see how GE Aerospace’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/28/2024
[2] Cumulative total returns since the end of 2016

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