Company Reports

Wide-moat GE Aerospace reported second-quarter results that showed strong margins, driven by its commercial engine servicing business as well as stronger business mix in its defense segment. We have increased our fair value estimate from $167 to $170 per share.

GE Aerospace has emerged as a formidable and focused turbine engine producer, powering about three of every four commercial airline flights.

Wide-moat GE Aerospace reported its last quarterly results to include operations with the recently spun off wind and power businesses of GE Vernova. Management's discussion, and our analysis, focused on the stand-alone commercial and military jet engine and propulsion business, and we see great prospects for it.

GE Aerospace has emerged as a formidable and focused turbine engine producer, powering about three of every four commercial airline flights.

We are reinitiating coverage of GE Aerospace as a stand-alone business following the spinoff of General Electric’s power and wind turbine business as GE Vernova. We assign the jet engine maker a wide economic moat rating based on the technical complexity of its products and the specialized know-how it has to design, build, and service them, as well as engines' very long product cycles and some service contracts that imbue switching costs for GE Aerospace’s customers.

GE Aerospace has emerged as a formidable and focused turbine engine producer, powering about three of every four commercial airline flights.

GE Aerospace held its investor day on March 7. Following our review of the materials and the presentation, we’re not materially altering our forecast, though we are front-end loading the timing of cash flows. These small changes, coupled with the time value of money since our last forecast, positively impact our valuation by $1 each. Consequently, our fair value estimate rises to $156 from $154 previously. Embedded in our DCF valuation is our conviction that GE Aerospace will be worth nearly $140 billion, while GE Vernova will be worth nearly $35 billion on an equity value basis. We point out that GE Vernova’s balance sheet will be in a net cash position (meaning Vernova will receive a cash contribution from GE but no debt).

We believe that Larry Culp has engineered a successful turnaround of General Electric and has helped position each of its businesses as leaders in mission-critical end markets.

GE Vernova—General Electric's future energy spinoff—held its inaugural investor day March 6. After reviewing the materials, we see no reason to change our $154 fair value estimate for the narrow-moat-rated consolidated firm. In our discounted cash flow model, we assume that GE Vernova is worth roughly $35 billion in equity value. Over the long term (by 2028), GE Vernova expects to increase organic sales at a mid-single-digit compound annual rate, achieve a 10% adjusted EBITDA margin, and convert free cash flow at a 90%-110% rate.

After reviewing GE’s 10-K filing, we raise our fair value estimate by 20% to $154. Our long-term estimates for midcycle margins and cash remain unchanged, but we’ve lowered our discount rate by 130 basis points on greater fundamental certainty. We also lower our Uncertainty Rating to Medium from High. In summation, GE is no longer the troubled conglomerate it was five to seven years ago, consistently extinguishing fires. Instead, CEO Larry Culp has positioned these businesses as more nimble leaders serving mission-critical needs. Our revised valuation reflects this increased confidence.

We believe that Larry Culp is engineering a successful turnaround of General Electric and that there's still upside in this story, particularly with the passage of the Inflation Reduction Act.

Narrow-moat-rated GE’s fourth-quarter and full-year results marginally beat our expectations on most metrics, except for free cash flow—mostly due to carrying greater inventory than we expected. Consequently, we lift our fair value estimate by 4% to $128, though over half of the raise is due to the time value of money. However, we expect to reevaluate further as GE issues additional filings, including its 10-K, and during GE’s investor day in early March.

We believe that Larry Culp is engineering a successful turnaround of General Electric and that there's still upside in this story, particularly with the passage of the Inflation Reduction Act.

We've lifted our fair value estimate to $123 per share from $118 following narrow-moat-rated General Electric's excellent third quarter. Results materially beat our above-FactSet-consensus expectations thanks to commercial aerospace demand. Following these results, management raised its outlook for revenue, earnings, and free cash flow. Even so, we continue to model above guidance and consensus on the strength of GE's commercial aerospace business. Commercial aerospace increased revenue nearly 29% year on year, with margin-accretive service revenue growing 31% year on year and 18% sequentially. Strong organic sales growth and favorable mix helped total aerospace margins exceed 20% for the first time in seven quarters.

We believe that Larry Culp is engineering a successful turnaround of General Electric and that there's still upside in this story, particularly with the passage of the Inflation Reduction Act.

We believe Larry Culp is engineering a successful turnaround of General Electric. We think there's still upside in GE's turnaround story, particularly with the passage of the Inflation Reduction Act.

Narrow-moat-rated General Electric crushed our second-quarter earnings estimates. Results also easily moved past our revenue estimates. The most meaningful differences from our top-line estimates came from renewables, led by higher grid and offshore wind equipment revenue. At the margin level, aerospace operating profits cruised past our expectations. These exceptional results were thanks to commercial service revenue on strong external part sales and internal shop visits. In the first half alone, GE’s year-to-date earnings have exceeded what GE produced in its prior full-year results, excluding GE HealthCare’s contribution.

We believe Larry Culp is engineering a successful turnaround of General Electric. We think there's still upside in GE's turnaround story, particularly with the passage of the Inflation Reduction Act.

We believe Larry Culp is engineering a successful turnaround of General Electric, yet investors assign little value to GE Vernova. While most of the easy share gains following the spinoff of GE HealthCare are gone, we think there's still upside in GE's turnaround story, particularly with the passage of the Inflation Reduction Act. We also believe the shares have unfairly priced in some deal limbo before the Vernova spinoff planned for early 2024.

Narrow-moat-rated GE’s first-quarter results were superb, materially outpacing our expectations. We were hoping to see over $13.1 billion of adjusted revenue (sale of equipment and services but excluding insurance). GE cruised past this result with $13.7 billion of adjusted revenue, a 17% year-on-year increase. More impressive, we were expecting about $0.00 of adjusted EPS, and GE posted 27 cents, meaningfully over our estimate and almost double that of FactSet consensus, as we’ve been modeling most of our earnings growth in the fourth quarter. This was an exceptional result, as adjusted EPS during the quarter rose by 36 cents from last year’s first quarter. Perhaps most encouragingly, GE posted its first positive free cash flow figure in the first quarter since 2015, long before CEO Larry Culp took over the helm.