The recent fourth-quarter 2024 earnings report from GE Aerospace (GE 1.28%) blew away expectations. Still, if you are thinking of buying or continuing to hold the stock, you are probably thinking about what the company will look like in a year, at least as much as now.
In that context, here's what a snapshot of GE could look like and whether it would make the stock a good value.
GE Aerospace: rising expectations
There's no escaping the fact that GE's fourth-quarter and full-year 2024 earnings were much better than expected. As such, the positive reaction to the earnings report was no surprise.
NYSE: GE
Key Data Points
To put it into context, management's guidance from the third-quarter earnings report in October called for commercial engines and services (CES) full-year operating profit of $6.6 billion to $6.8 billion; ultimately it came in at $7.1 billion.
Given that GE earned $4.9 billion in operating income in the first three quarters, the fourth-quarter performance of $2.2 billion was way ahead of the implied guidance of $1.7 billion to $1.9 billion.
Similarly, in the other segment, defense and propulsion technologies (DPT), GE delivered a full-year operating profit of $1.1 billion, compared to the lower end of the previous guidance for $1 billion to $1.3 billion.
As such, both segments reported earnings ahead of guidance. In summary, GE Aerospace continues to exceed expectations due to excellent growth in its commercial-engine services business. The company's momentum will likely continue through 2025 since its order growth remains robust.
Data source: GE Aerospace presentations. Chart by author.
GE Aerospace projections
According to management's guidance, the company's metrics will look like this at the end of 2025:
- Operating profit of $7.8 billion to $8.2 billion, compared to $7.3 billion in 2024.
- Adjusted earnings per share (EPS) of $5.10 to $5.45, compared to $4.60 in 2024.
- Free cash flow (FCF) of $6.3 billion to $6.8 billion, compared to $6.1 billion in 2024.
Putting all this together, at the end of 2025, based on the midpoint of the guidance above and the current share price, GE Aerospace will be a company growing earnings by 14.7% and trading at 37 times earnings and slightly less than 34 times FCF.
While those valuations look expensive, investors need to consider that the snapshot will also show a company set for mid-teens growth in 2026. Moreover, there are a few other reasons to believe the company is set for long-term growth.
Good news for GE Aerospace investors
The long-term case for buying the stock rests on the decades-long revenue streams from its higher-margin services/aftermarket sales on its airplane engines. The company is the dominant player in the commercial engine market.
Its joint venture with France's Safran, CFM International, produces the CFM56 (used on the legacy Airbus A320 family and the Boeing 737), and the LEAP engine (used on the Boeing 737 MAX and the A320 neo family). GE also makes engines for Boeing's wide-body airplanes.
Image source: Getty Images.
As the installed base shifts to the LEAP engine, GE Aerospace's services revenue will migrate from the CFM56 to the LEAP. Management had good news on this front.
First, chief financial officer Rahul Ghai confirmed that "LEAP services became profitable in 2024. And the program becomes breakeven in 2025, with original equipment following a year later in 2026."
Second, the delay in new airplane deliveries at Boeing and Airbus means older planes are being run more, so the period when services revenue on the CFM56 engine timeline has been pushed out. Indeed, Ghai noted that based on the current trajectory, LEAP and CFM56 will deliver the same profit for GE Aerospace "sometime in late toward the end part of this decade."
In summary, the CFM56 revenue outlook is improving, and LEAP profitability is improving more than anticipated.
Third, management said it expected 15% to 20% more LEAP deliveries in 2025, with engine volume growth in the high teens, LEAP deliveries up 15% to 20%, and pricing more than offsetting "negative engine mix" according to Ghai.
That's a very positive statement because investors had reason to fear the increase in engine deliveries (which are typically sold at a loss, hence the "negative engine mix" comment) would hold back CES margins.
Image source: Getty Images.
GE Aerospace in one year
The company is likely to be in a strong position next year, with mid-teens earnings growth in the bag and given its outlook. Meanwhile, LEAP deliveries should grow again as LEAP services expand profitability and the overall LEAP program turns profitable.
While it might not be enough to make GE a buy at this level, it puts the stock in the category as being an investment to make on any significant market-led weakness.
