On Wednesday, UBS maintained a positive stance on GE Aerospace (NYSE:GE), increasing its price target to $230 from $223, while keeping a Buy rating on the stock. The firm acknowledged GE's consistent top-line growth, margin expansion, and robust cash flow generation, despite ongoing supply chain challenges in both Original Equipment (OE) and Services sectors.
The analyst noted that GE Aerospace's third-quarter revenue and EBIT matched consensus expectations, which was significant considering the stock had surged 14% since the Boeing (NYSE:BA) strike began five weeks ago. Despite this, UBS has slightly lowered its EBIT estimates for 2024 and 2025 by 1%, contrasting with the 9% decline in the company's share price.
UBS remains confident in GE Aerospace's outlook, citing strong Services bookings and improved third-quarter margins, even with an unfavorable revenue mix. This confidence has led to an increase in the firm's EBIT projections for 2027 and 2028.
The firm's reassurance of a Buy rating is underpinned by the company's clear path to mid-teens free cash flow (FCF) per share growth and potential for capital deployment. GE Aerospace has already demonstrated its financial strength with year-to-date buybacks totaling $3.7 billion. The analyst's statement emphasizes the company's continued performance and financial strategy: "With high visibility into mid-teens FCF/sh compounding and capital deployment upside, we reiterate our Buy rating on GE Aerospace."
In other recent news, GE Aerospace has reported a significant 28% increase in orders, contributing to a 6% rise in revenue and a 14% growth in operating profit. The company's adjusted earnings per share soared by 25%, and it generated a substantial $1.8 billion in free cash flow. The backlog of orders now stands at an impressive $149 billion, predominantly linked to services. In light of this performance, GE Aerospace has elevated its full-year operating profit guidance to between $6.7 billion and $6.9 billion.
Despite a decline in the Defense & Propulsion Technologies segment profit and a 4% drop in total engine deliveries due to supply chain issues, the company remains optimistic. The Commercial Engines & Services segment saw a 29% surge in orders and a 10% growth in services revenue. Meanwhile, the company is investing $1 billion in MRO to enhance aftermarket capacity and opening a new LEAP MRO shop in Poland.
Analyst Noah Poponak questioned the impact of the 777X 9X headwind on projections for 2025, to which GE Aerospace responded that despite pressure from 9X shipments and increased R&D costs, it projects a strong services growth rate of 15% for the full year.
InvestingPro Insights
GE Aerospace's strong performance, as highlighted by UBS, is further supported by recent InvestingPro data. The company's market capitalization stands at an impressive $191.2 billion, reflecting its significant presence in the Aerospace & Defense industry. GE's revenue growth of 21.95% over the last twelve months as of Q3 2024 aligns with UBS's observation of consistent top-line growth.
InvestingPro Tips reveal that GE has maintained dividend payments for 54 consecutive years, demonstrating financial stability and commitment to shareholder returns. This is particularly relevant given UBS's emphasis on GE's potential for capital deployment. Additionally, the company's high return over the last year, with a one-year price total return of 108.78%, underscores the stock's strong performance mentioned in the article.
It's worth noting that GE is trading at a high P/E ratio of 37.8, which may indicate investor confidence in future growth prospects. For readers interested in a more comprehensive analysis, InvestingPro offers 13 additional tips for GE, providing a deeper understanding of the company's financial health and market position.
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