GE Aerospace Shines Post-Split from General Electric

GE Aerospace, a division that has recently become independent from General Electric (GE:NYSE) following a strategic split, is stepping into the spotlight with its first quarterly results as a standalone entity. This move comes on the heels of a remarkable nearly 40% surge in GE's stock price leading up to the separation, with the trend continuing upward. The focus is now on GE Aerospace's commercial aftermarket sales, a segment that has emerged as a pivotal component of its business model. This anticipation is backed by FactSet analysts' projections, expecting GE Aerospace to unveil adjusted earnings of 65 cents per share on revenue of $15.25 billion, marking a significant improvement from the previous year's figures.

The optimism surrounding GE Aerospace is further bolstered by TD Cowen's upgrade of GE stock to a buy rating from hold, driven by the promising outlook of the company's commercial aftermarket prospects. This positive sentiment is partly due to the production challenges faced by Boeing, which are anticipated to indirectly benefit GE Aerospace. Given that over half of GE Aerospace's sales and three-quarters of its profits stem from the commercial aerospace aftermarket, the sector's dynamics play a crucial role in shaping the company's financial health. TD Cowen's adjustment of GE's price target to $180 from $175 reflects confidence in the near-term advantages arising from Boeing 737 Max's production hurdles.

Looking ahead, GE Aerospace has laid out ambitious goals, aiming for low double-digit revenue growth in 2024, with an operating profit target of up to $6.25 billion and more than $5 billion in free cash flow. The trajectory extends into 2025 and beyond, with the company setting sights on maintaining low double-digit sales growth and achieving an operating profit of approximately $7.3 billion by 2025, and a lofty $10 billion by 2028. These targets underscore GE Aerospace's commitment to not only expanding its market presence but also enhancing shareholder value through dividends and share buybacks, planning to return about 70%-75% of its cash to shareholders.

The financial landscape of GE, as detailed by its market valuation metrics, paints a picture of a company with a balanced valuation and a solid financial structure. With a price-to-earnings (P/E) ratio of approximately 14.75 and a price-to-sales (P/S) ratio of about 2.42, GE presents itself as an attractive investment option for those seeking reasonable earnings potential. The enterprise value (EV) to sales ratio of roughly 2.50 further indicates a moderate market valuation of the company's sales relative to its enterprise value. However, the EV to operating cash flow ratio of approximately 32.86 suggests that the market may be pricing GE's operating cash flow at a premium, possibly in anticipation of future growth or improvements in operational efficiency.

In conclusion, GE Aerospace's emergence as a standalone entity in the aerospace sector, coupled with its ambitious growth targets and the financial health of GE as a whole, presents a compelling narrative for investors. The company's strategic focus on the commercial aftermarket, alongside its robust financial metrics, positions GE Aerospace for potential success in the competitive aerospace industry.