The company we all knew as “General Electric” has undergone massive changes over the past few years. Spinning first GE Healthcare and then GE Vernova (its energy business), which emerged from Chrysalis earlier this year, is a new and reinvented “GE” as it is known. GE Aerospace(NYSE: GE )A specialist in the manufacture of aircraft engines for commercial aerospace giants Boeing And airbusAnd also for the US military.
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What are the prospects of this new company? Read on and find out, as we examine what GE Aerospace is all about today, what its plans are for the future — and what Wall Street thinks about those plans.
At one time, General Electric was a diversified industrial conglomerate, producing products as diverse as light bulbs and washing machines, power plants and medical imaging devices… and even airplane engines. Today, GE Aerospace actually does this last thing.
GE reported Third quarter earnings In October. Sales growth was just so-so, with revenue up 6% year over year. But several numbers gave investors reason to hope that growth would improve soon – profit margins first and foremost. A year ago, GE’s aerospace business was earning an operating profit of 18.8% on its sales. In Q3 2024, this number improved to 20.3%.
Growth in new orders was also encouraging. GE took in $12.6 billion in orders during the quarter, up 28% from a year ago, indicating potentially strong sales growth in future quarters. And supporting that view, CEO Larry Culp raised the company’s earnings forecast for the rest of this year.
By the end of 2024, it now projects adjusted earnings per share of more than $4.20, and free cash flow (FCF) of more than $5.6 billion (about 12% ahead of forecasts).
The gospel does not end there. In a March presentation to investors, GE broadly laid out its financial goals through 2028. All this is predicated on the gradual “normalization”. air travel and demand for aircraft (and aircraft engines), leading to “robust commercial aerospace” growth worldwide.
What does this mean in dollars and cents? Starting in 2025, management forecasts low-double-digit sales growth that will lead to operating profit of $7.1 billion or better, with free cash flow equal to or greater than after-tax net income. Then, over the coming three years, management hopes to settle into a breakthrough: Achievable, high-single-digit sales growth drives operating profits steadily higher.
By the forecast endpoint in 2028, GE expects pre-tax earnings of $10 billion or more annually, with FCF continuing to equal or exceed reported net income.
Are these estimates realistic? Wall Street thinks so – in fact, polled by analysts S&P Global Market Intelligence Some numbers seem to be on the conservative side.
For example, in 2025 alone, analysts project GE’s operating profit to be $7.3 billion, not $7.1 billion. Their FCF forecast is for just $5.6 billion in cash profit — but that could mean GE could deliver a positive surprise if it hits its numbers next year.
Scrolling through to 2028, Wall Street is projecting a 29% increase in net sales, generating $10.8 billion in operating profit and $8.5 billion in positive free cash flow. Specifically, if GE achieves this mark, it will mean that the company has succeeded in doubling its FCF over the five-year period from 2023 to 2028.
At Friday’s close, GE Aerospace stock had a $190 billion market capitalization. Based on current-year earnings, however, it’s not exactly cheap, resulting in a price-to-earnings (P/E) ratio of around 35. But if GE stock grows as fast as it promises — and as fast as analysts say it’s going to — could that be enough to justify buying the shares anyway?
As much as I’d like to tell you “of course it is,” I’m not so sure.
Even if all goes well and GE meets analyst forecasts, $190 billion in current market cap divided by $8.5 billion in free cash flow. Admittedly Yields four years from now yield a price-to-FCF (P/FCF) ratio of over 22. (And remember that this multiplier is based on profits the company won’t make for another four years — and may actually No earn.)
Maybe that valuation would be justified if GE were growing at rates in the 20% range four years from now, but neither the company nor analysts predict that. Rather, they want to see FCF grow by a steady 10% in 2028 — a respectable number, but not enough to justify a P/FCF ratio of 22, in my view.
All things considered, the 70%-plus gain GE’s stock has made this year may have to do for some time. At current prices, the stock is unlikely to rise much from here.
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rich smith No positions in any of the stocks mentioned. The Motley Fool has and has recommended positions in GE HealthCare Technologies. The Motley Fool recommends GE Aerospace. Motley Fool has a Disclosure Policy.
