GE Aerospace Earnings: Strong Commercial Margin Bodes Well

Key Morningstar Metrics for GE Aerospace

• Fair Value Estimate: $198.00
• Morningstar Rating: ★★★
• Economic Moat: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of GE Aerospace’s Earnings

GE Aerospace’s GE first-quarter commercial engines segment revenue grew 15% and earned a 27.5% operating margin. Defense revenue and margin were flatter, but management reaffirmed its full-year revenue and profit expectations, notwithstanding recent macroeconomic turbulence.

Why it matters: We maintain our admiration for the formidable franchise GE Aerospace has cultivated, and the discipline with which it continues to pursue productivity-enhancing projects throughout the business. In turbulent times, the true durability of a moat like GE’s can prove its worth.

• The quarter saw slower-than-anticipated new engine deliveries, but higher prices and a favorable mix to larger engines made for 9% higher revenue in original equipment. With high global aircraft utilization, the commercial aftermarket business grew 31% year on year.
• Management estimated that the potential cost of tariffs, if they were to remain in effect through 2025, could add up to $500 million, including offsetting tactics that the company is exploring to mitigate their impact. The company will seek offsetting cost cuts this year as well.

The bottom line: We raised our fair value estimate for wide-moat GE Aerospace’s shares to $198 from $195 due to the time value of money. The shares trade within 5% of our fair value estimate, though we anticipate the firm will continue to enhance its dividend and share repurchase programs over time.