GE Aerospace is poised to benefit from rising demand for jet engines. Is GE stock a buy as it coasts near a buy point?
GE Aerospace
On May 23, Boeing warned on new aircraft deliveries and free cash flow. An aging commercial aircraft fleet is expected to benefit GE Aerospace's aftermarket parts and services business.
A month earlier, GE Aerospace raised its full-year profit guidance while issuing its first earnings report as a standalone company.
The aerospace and defense pure-play company emerged from General Electric's big breakup, after the spinouts of GE Vernova and GE HealthCare Technologies. GE Aerospace kept the GE ticker symbol.
GE announced a three-way breakup — into separate aerospace, health and energy companies — in 2021. Prior to that, the industrial conglomerate shed a series of assets, from lighting to locomotives.
In November 2017, GE signaled its eventual breakup amid financial troubles.
GE Stock Eyes Buy Point
The new aerospace stock remains below a 170.80 buy point in a three-weeks-tight pattern, the MarketSurge pattern recognition shows. It continues above the 10-day and 21-day moving averages.
Shares soared in the first four months of this year and for most of 2023. Basically, GE stock is at record levels, though GE Aerospace is a completely different company from the old GE.
The relative strength line has also retreated slightly after a strong rally. The RS line, the blue line in IBD charts, tracks GE stock's progress vs. the S&P 500.
Year to date, GE stock has jumped 62%. It nearly doubled in 2023.
The industrial giant earns an IBD Composite Rating of 97 out of 99, according to the IBD Stock Checkup tool. The rating combines key technical and fundamental metrics in a single score.
General Electric owns an RS Rating of 96, meaning it has outperformed 96% of all stocks in IBD's database over the past year.
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GE Aerospace Earnings
On key earnings and sales metrics, GE stock earns an EPS Rating of 77 out of a best-possible 99, and an SMR Rating of B on a scale of A (best) to E (worst).
The EPS Rating compares a company's earnings per share growth against all other companies. The SMR Rating reflects sales growth, profit margins and return on equity.
GE earnings struggled during the pandemic, weighing on the stock's EPS rating. But profits boomed in 2023 and are expected to remain strong through 2025.
In the first quarter of 2024, GE's earnings skyrocketed 204%, topping forecasts, the company revealed on April 23. Revenue gained 11%.
GE Aerospace reported a 34% increase in total orders during the quarter to $11 billion, with gains across the commercial and defense markets. The company also raised the midpoint of full-year 2024 profit guidance.
Free cash flow (FCF) at GE Aerospace was $1.7 billion in Q1, more than doubling year over year.
FCF is a closely watched metric. In 2023, total FCF (across all business segments) reached $5.2 billion, up by $2.1 billion from 2022, according to GE's 2023 Annual Report.
Seventeen analysts on Wall Street rate GE stock a buy, according to FactSet. Two have a hold rating and no one has a sell.
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GE's 'Crown Jewel'
GE Aerospace — once called GE's "crown jewel" — makes jet engines and aviation systems for plane makers like Boeing, as well as the military. It also runs a lucrative aftermarket business for engine repair and maintenance.
During the pandemic, travel restrictions to halt the spread of Covid-19 negatively affected aircraft deliveries and orders.
Aerospace suppliers also struggled to deliver parts and equipment on time, due to pandemic-fueled shortages of semiconductor chips and plastics. Costs of aluminum and steel also rose.
For GE Aerospace, many of those headwinds have eased.
It is benefiting from the rebound in air travel, as well as growing defense orders.
Further to that, Boeing's production crisis is forcing airlines to fly older planes for longer, meaning more demand for GE Aerospace's after-market services business. However, GE Aerospace's jet-engine business is slashing production of the Leap, which powers the troubled Boeing 737 Max plane.
More broadly, airline and aerospace companies are grappling with macroeconomic and geopolitical risks, including wars in the Middle East and Europe.
Rivals to GE Aerospace include Raytheon Technologies and Rolls-Royce in the jet-engine business. GE Aerospace competes with Honeywell in aviation systems.
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Is GE Stock A Buy?
General Electric has completed its huge transformation, from a storied industrial conglomerate to independent aviation, energy and health care pure-play companies.
The new aerospace company continues to grow jet-engine orders.
However, the aviation business is highly cyclical. Risks remain across the global economy. The outbreak of major wars adds to business uncertainty.
For GE Aerospace, these are challenging headwinds.
From a technical view, GE stock remains below its latest buy point though it continues to act well. Shares could break out, so check back for updates.
Bottom line: GE stock is not a buy right now.
Over the long term, buying an index fund, such as SPDR S&P 500, would have delivered safer, higher returns than buying GE stock. However, shares have outperformed since mid-2022 as General Electric revived growth and transformed into an aerospace-focused company.
If you want to invest in a large-cap stock, IBD offers several strong ideas here.
To find the best stocks to buy or watch, check out IBD Stock Lists and other IBD content.
