The company that we all once knew as "General Electric" has undergone massive changes over the past couple years. Spinning off first GE HealthCare and then GE Vernova (its energy business), what emerged earlier this year from the chrysalis is a new and reinvented "GE" known as GE Aerospace (NYSE: GE), a specialist in the manufacture of airplane engines for commercial aerospace giants like Boeing and Airbus, and also for the U.S. military.
What are this new company's prospects? Read on and find out, as we examine what GE Aerospace is today, what its plans are for the future -- and what Wall Street thinks of these plans.
Where GE Aerospace stock is today
Once upon a time, General Electric was a diversified industrial conglomerate, churning out products as diverse as light bulbs and washing machines, power plants and medical imaging devices... and airplane engines. Today, GE Aerospace basically just does that last thing.
GE reported third-quarter earnings in October. Sales growth was only so-so, with revenue rising 6% year over year. But several numbers gave investors reason to hope growth will soon improve -- profit margins first and foremost. One year ago, GE's aerospace business was earning an operating profit margin of 18.8% on its sales. In Q3 2024, that number improved to 20.3%.
Also encouraging was the growth in new orders. GE took in $12.6 billion in orders during the quarter, up 28% from a year ago, foreshadowing potentially enormous sales growth in future quarters. And supporting that view, CEO Larry Culp raised the company's earnings forecast for the rest of this year.
Through the end of 2024, it now projects adjusted earnings of more than $4.20 per share, and free cash flow (FCF) exceeding $5.6 billion (roughly 12% ahead of prior predictions).
What GE expects to do between now and 2028
The good news doesn't end there. In a March presentation to investors, GE laid out in broad strokes its financial goals through 2028. All are predicated on the gradual "normalization" of air travel and demand for airplanes (and airplane engines), leading to "robust commercial aerospace" growth around the globe.
What does this mean in dollars and cents? Beginning with 2025, management forecasts low-double-digit sales growth leading to operating profits of $7.1 billion or better, with free cash flow equaling or exceeding after-tax net income. Then, over the ensuing three years, management expects to settle into a stride: achievable, high-single-digit sales growth driving operating profits steadily higher.
By the end point of the forecast in 2028, GE anticipates pre-tax earnings of $10 billion or more annually, with FCF continuing to equal or exceed reported net income.
What analysts think GE will earn in 2028
Are these projections realistic? Wall Street thinks so -- in fact, analysts polled by S&P Global Market Intelligence seem to think some of the numbers could be on the conservative side.
For example, in 2025 alone, analysts have GE's operating profit pegged for not $7.1 billion but $7.3 billion. Their FCF forecast, granted, is for only $5.6 billion in cash profit -- but that may mean GE could deliver a positive surprise if it hits its numbers next year.
Scrolling ahead to 2028, Wall Street is projecting 29% total sales growth, generating $10.8 billion in operating profit and $8.5 billion in positive free cash flow. Notably, if GE hits this mark, it will mean the company has succeeded in more than doubling its FCF over the five-year period from 2023 through 2028.
Is GE stock a buy?
At Friday's close, GE Aerospace stock had a $190 billion market capitalization. Based on current-year earnings, though, that's not exactly cheap, resulting in a price-to-earnings (P/E) ratio around 35. But if GE stock grows as fast as it's promising -- and as fast as analysts say it's going to grow -- might that be enough to justify buying shares anyway?
Much as I'd like to tell you "of course it is," I'm not so sure.
Even if everything goes right and GE hits analyst forecasts, $190 billion in current market cap divided by the $8.5 billion in free cash flow GE is supposed to generate four years from now yields a price-to-FCF (P/FCF) ratio of more than 22. (And remember that this is a multiple based on profits the company won't earn for another four years -- and might in fact not earn.)
Maybe this valuation would be justifiable if GE were still growing by rates in the 20% range four years from now, but neither the company nor the analysts forecast that. Rather, they're looking to see FCF growing at 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 gains GE's stock has made this year might have to do for a while. At current prices, the stock's unlikely to go up much more from here.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE HealthCare Technologies. The Motley Fool recommends GE Aerospace. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
