Pick Boeing Stock Over GE?

Given its better valuation, we believe that Boeing stock (NYSE: BA) is a better pick than its peer GE stock (NYSE:GE) for the next three years. GE stock trades at a higher multiple of 2.9x revenues, versus 1.3x for BA. GE Aerospace’s better profitability and financial position largely support this gap in valuation. However, we think this gap will narrow in favor of Boeing in the coming years. There is more to the comparison, and in the sections below, we discuss why we think BA will outperform GE in the next three years. In this analysis, we compare a slew of factors, such as historical revenue growth, returns, and valuation for Boeing vs. GE Aerospace.

1. GE Stock Has Fared Significantly Better Than BA

GE stock has seen extremely strong gains of 200% from levels of $55 in early January 2021 to around $165 now, vs. a decline of about 25% for BA from $215 to $160 over this period. This compares with a 50% gain for the S&P 500 over this period. However, the changes in GE and BA stocks have been far from consistent. Returns for GE stock were 10% in 2021, -11% in 2022, and 94% in 2023, while BA stock saw returns of -6%, -5%, and 37% over these years, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that GE and BA 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. 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.

2. GE Aerospace Has Seen Better Revenue Growth

GE Aerospace saw its proforma revenue rise 43% from $24.6 billion in 2021 to $35.3 billion in 2023, while Boeing has seen its sales rise 25% from $62.3 billion to $77.8 billion over the same period.

The revenue growth for GE Aerospace has been driven by its service segment, which saw a large 63% rise between 2021 and 2023. This growth is being fueled by a robust aftermarket demand for engine servicing and maintenance of aircraft. This trend is expected to continue, faring well for GE Aerospace.

The erstwhile General Electric has undergone a significant restructuring. It had split its healthcare business last year and separated its renewable energy and power business earlier this year. GE Aerospace is now focused on high-growth commercial, military, and general aviation.

Boeing’s revenue growth has been led by a rise in airplane deliveries, from 340 in 2021 to 528 in 2023. However, the company has struggled to ramp up its production, impacting its deliveries. Supply chain disruption, labor issues for some suppliers, and the FAA capping further added to its woes. Deliveries over recent years have been far below the 806 airplanes the company delivered in 2018, before the pandemic. This year, following the incident of a cabin side panel detaching midair on a Boeing 737 Max 9 aircraft, the Federal Aviation Administration restricted the production of Boeing 737 aircraft to 38 a month. To add to Boeing’s woes, one of Boeing’s suppliers found a new problem with fuselages on several unfinished 737 Max planes. These incidents have resulted in uncertainties and a delay in deliveries. The fuselage is made by one of Boeing’s suppliers — Spirit AeroSystems. Boeing will acquire Spirit AeroSystems in an $8.3 billion deal, including debt. ^[1] This will likely help Boeing address the quality issues and get on track for its 2026 production target of 50 airplanes a month.

Still, Boeing is far from reaching the 38 aircraft-per-month target. It made only 25 jets in July. Although the company expects to reach the target of 38 by the end of this year, rating agencies think it may achieve this only in the second half of next year. ^[2]

There is a massive demand for new aircraft with a rise in global travel, and this trend is not going to change anytime soon. Aircraft manufacturers record most of their revenues at the time of delivery and amid the FAA cap on Boeing, its 2024 sales will take a hit. Now, GE supplies the engines for some of Boeing’s aircraft, including the 737 MAX. So the headwinds for Boeing will also have an impact on GE. However, the company’s focus on aftermarket service will provide it ample cushion.

Looking forward, we expect GE Aerospace to see its sales rise around 20% from $35 billion in 2023 to over $42 billion in the next three years. In comparison, we expect Boeing’s sales will likely rise around 25% from $78 billion to $98 billion over this period. This assumes that the company will return to higher production targets from 2025. Notably, demand is not an issue for Boeing. The company has a backlog of a whopping $520 billion. It is the company’s internal problems related to quality issues that have weighed on its overall business performance. Boeing is focused on addressing these issues and returning to strong growth. It expects 69% of the current backlog to be converted into revenue by 2028.

3. GE Aerospace Is More Profitable 

GE Aerospace’s EBIT margin expanded from -19.1% in 2021 to 29.5% in 2023, while that for Boeing improved from -5.4% to -1.1% over this period. Now that General Electric has split into three companies – GE Healthcare, GE Vernova, and GE Aerospace – the margin profile for GE Aerospace is expected to be robust going forward. For Boeing, the ongoing issues and production cap will weigh on its margin in the near term. But as the production expands, margins are expected to improve.

4. GE Aerospace Offers Lower Financial Risk

Looking at financial risk, GE Aerospace fares better than Boeing, with its 10% debt as a percentage of equity being lower than 54% for the latter. Moreover, its 13% cash as a percentage of assets is higher than 9% for Boeing, implying that GE Aerospace has a better debt position and more cash cushion.

4. The Net of It All

We see that GE Aerospace has demonstrated better revenue growth, is more profitable, and has a better financial position. Still, we think BA is the better choice of the two, given its attractive valuation. At its current levels, GE stock is trading at 2.9x revenues, compared to the 1.1x average P/S ratio seen over the last three years. In contrast, BA stock trades at 1.3x revenues, lower than its average P/S ratio of 2.0x seen over the last three years.

GE stock has rallied over 200% since early 2021 on the back of its restructuring efforts to separate into three companies. Investors have assigned a higher valuation multiple for GE Aerospace now, owing to its robust expected sales and earnings growth in the coming years. Moreover, General Electric was able to significantly reduce its debt from $78 billion in 2020 to $23 billion in 2023, fueling its stock price growth. However, we believe that most of these positives are now priced in for GE Aerospace. On the other hand, a slightly lower valuation multiple for Boeing makes sense amid its ongoing quality issues and lower production of airplanes.

Overall, both companies will likely see sales and profits rise in the coming years. In the short term, it appears that GE will fare better, thanks to its increased reliance on aftermarket service while Boeing struggles to ramp up its production. However, if we look at things over a three-year horizon, Boeing will likely outperform with an expected rise in overall deliveries. A lot of bad news is already priced in for Boeing, and if one believes that it will be able to ramp up its production in 2025, we think picking BA in the current dip makes sense.

While BA may outperform GE in the next three years, 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 9/4/2024
[2] Cumulative total returns since the end of 2016

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1. Boeing’s Press Release, July 1, 2024 [↩]
2. Moody’s and S&P doubt Boeing will hit year-end production targets, Allison Lampert and Rajesh Kumar Singh, Reuters, Aug 13, 2024 [↩]