Does GE Stock Have An Upside?

GE Aerospace (NYSE: GE) recently reported its Q3 results, with revenues and earnings comfortably ahead of our estimates. The company reported revenue of $9.8 billion and adjusted earnings of $1.15 per share, compared to our estimates of $9.1 billion and $1.10, respectively. GE’s Q3 numbers were also above the consensus estimates of $9.0 billion in sales and earnings per share of $1.14. In this note, we discuss key takeaways from GE’s recent results and its valuation.

How Did GE Fare In Q3?

GE Aerospace’s revenue of $9.8 billion was up 6% y-o-y. Looking at segments, commercial engines and services saw an 8% y-o-y growth to $7.0 billion and defense and propulsion technologies sales were up 2% to $2.2 billion. GE also saw a 150 bps y-o-y improvement in adjusted operating margin to 20.3% in Q3. Higher revenues and margin expansion resulted in the bottom line of $1.15, reflecting a 25% y-o-y rise. GE also raised its full-year outlook, with earnings now estimated to be in the range of $4.20 and $4.35, versus $3.95 and $4.20 earlier.

GE’s aftermarket business has been faring well, a trend expected to continue going forward. The company’s total order book also surged 28% y-o-y to $12.6 billion during the quarter. While the broader numbers were better than street estimates, GE continues to face supply chain issues. Furthermore, the company will likely see an impact of the union strike at Boeing in the near term.

What Does This Mean For GE Stock?

GE stock plunged 9% after its Q3 results announcement, as the performance of the commercial engines and services segment was slightly below the expectations and investors remained concerned about the impact of Boeing union’s strike on GE. If Boeing faces production issues, GE will see an impact on the number of engines delivered to Boeing. We estimate GE Aerospace’s Valuation to be $197 per share, reflecting a little room for growth from its current levels of $182.

GE stock is up a solid 80% this year. The stock rallied after the company split its healthcare business last year and separated its renewable energy and power business earlier this year. After spinning off its other businesses, GE Aerospace is expected to see robust earnings growth in coming years and a healthy balance sheet, resulting in investor optimism.

However, if we look at a slightly longer term, the changes in GE stock over the last three-year period have been far from consistent, with annual returns being considerably more volatile than the S&P 500. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

While GE stock looks like it has little room for growth, it is helpful to see how GE Aerospace’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Invest with Trefis Market Beating Portfolios

See all Trefis Price Estimates