An RBC Capital analyst recently raised his price target on GE Aerospace (GE 1.07%) stock from $160 to $165 and maintained his overweight rating. The update implies a 9.3% upside on the stock over the next 12 months.

Looking ahead to first-quarter earnings

The aerospace market is split between original equipment manufacturing (OEM) and aftermarket. Delivery disruptions from Boeing mean that its OEM suppliers are likely to reduce their estimates for sales to Boeing this year. This is even more problematic because those suppliers were gearing up their production in line with Boeing's expected production ramp-up for the 737 MAX.

GE Aerospace's joint venture with Safran, CFM International, produces the LEAP engine -- the only engine option for the Boeing 737 MAX. GE management had previously guided for a 20% to 25% increase in unit production of the LEAP in 2024, but given the current situation, it might dial back its forecast.

What it means to GE Aerospace investors

There's potential for near-term disappointment on the OEM side. Still, investors don't buy stocks based on the variance in trading during a few quarters. A few other points to consider:

  • A lack of new airplane deliveries means airlines will operate their older planes longer, which is likely to result in more revenue from the aftermarket side of the business where GE Aerospace makes its profits.
  • For investors focused on the near term, it's important to remember that new airplane engines are generally sold at a loss. Any slowdown in LEAP production will be a plus for near-term profits.
  • Airplane deliveries are just being pushed out, not canceled, and Boeing is fully committed to increasing MAX's production rate.

Some useful insight was offered recently by United Airlines CFO Michael Leskinen who, while discussing the 737 MAX's delivery delays, said: "We have signed letters of intent to lease 35 new Airbus A321neos with CFM engines scheduled for delivery in 2026 and 2027."

CFM engines will still be produced and installed on jets even if some Boeing deliveries are delayed. That suggests the upside analysts have for GE Aerospace is feasible.