GE Aerospace Earnings: We Raise Fair Value Estimate on Margin Growth Trajectory

GE Aerospace released its third-quarter earnings report on Oct. 20. Here’s Morningstar’s take on GE Aerospace’s earnings and stock.

Key Morningstar Metrics for GE Aerospace

• Fair Value Estimate
  : $350.00
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : Medium

What We Thought of GE Aerospace’s Q3 Earnings

GE Aerospace’s commercial engines segment revenue grew 21% year over year with a 28% operating margin in the third quarter. Defense revenue grew 7%, with a 14% margin. Management again raised its full-year revenue and profit expectations amid macroeconomic turbulence and industry uncertainty.

Why it matters: Notwithstanding a spike in jet fuel prices and geopolitical jitters related to war in and around Iran, persistent global aircraft utilization and fewer recent retirements of older jets in recent months led the commercial aftermarket business to grow 26% year to date.

• The company shipped 64 more commercial engines in the third quarter than last year, including 51 more in the LEAP family. New engine deliveries generally provide lower margins than aftermarket sales, but commercial margins remained healthy, nearing 28%.

The bottom line: We have raised our fair value estimate for wide-moat GE Aerospace to $350 per share from $347 due to the time value of money and a slightly steeper medium-term aftermarket margin growth trajectory. The shares trade within 14% of our fair value estimate, though we anticipate the firm will continue enhancing its dividend and share-repurchase programs.

Bears say: Investors are concerned that a wave of older aircraft (and their engines) that have seen prolonged use while new aircraft deliveries stagnated in the post-pandemic supply chain crunch will cause a steep dropoff in aftermarket aerospace. This has weighed on GE and related companies’ shares.

• While aircraft retirements usually average 2%-3% of the fleet annually, and only 1%-2% of jets have been retired for several years, leaving some 800 or more jets in service that might otherwise have been redeployed or scrapped, we think the thesis is overwrought.
• When retirements start catching up to normal pace—because of the long-term nature of aircraft service planning—our forecast does not entail a steep drop in aftermarket revenue, but rather a deceleration of recent growth.

The bottom line: We raised our fair value estimate for wide-moat GE Aerospace to $350 per share from $347 due to the time value of money and a slightly steeper medium-term aftermarket margin growth trajectory. The shares trade 15% below our fair value estimate, though we anticipate the firm will continue to enhance its dividend and share-repurchase programs.

The following are excerpts from Morningstar’s company report on GE Aerospace.

Fair Value Estimate for GE Aerospace

With its 4-star rating, we believe GE Aerospace stock is moderately undervalued compared with our long-term fair value estimate of $350. Our estimate represents an enterprise value/2026 estimated EBITDA ratio of 27.5 times and 43.5 times our 2026 earnings estimate.

With GE’s engines powering nearly three-fourths of global commercial flights, the biggest profit driver for the company is simply more airplanes continuing to take off and land. Given its portfolio of newer engines entering service, we see decades of sales and eventual profitability growth from manufacturing new engines in the medium to long term, while the company’s older workhorse engines should still provide over a decade of healthy profits, primarily from aftermarket engine services.

We appreciate the lean operating methods that CEO Culp and his team have implemented at GE Aerospace. Our aggregate forecast shows commercial aerospace margins approaching 29% in our decade-long forecast period, and defense margins just over 24%. Beyond the medium term, we see potential for further margin expansion, assuming no major disruption to air traffic or the manufacturing supply chain.

Read more about GE Aerospace’s fair value estimate.

Economic Moat Rating

We assign GE Aerospace a wide Economic Moat Rating based on the customer switching costs stemming from GE’s unmatched installed base of aircraft engines with very long useful lives and intangible assets derived from the complex technical know-how it takes to design, produce, and maintain them.

GE currently competes in virtual duopolies in the wide-body and narrow-body jet engine markets against Rolls-Royce and Pratt & Whitney, respectively. Crucial to GE Aerospace’s moat is that turbine engines typically fly for more than 20 years, and the company’s commercial and engine services business makes 70% of that revenue from servicing engines and selling proprietary replacement parts. This means GE Aerospace alone commands approximately 40% of the global engine maintenance, repair, and overhaul market, using Oliver Wyman’s MRO market forecasts.

Read more about GE Aerospace’s economic moat.

Financial Strength

As of year-end 2025, GE Aerospace’s net debt amounted to just $8 billion on a $130 billion balance sheet. GE’s gross debt of $20 billion comes in under 2 times EBITDA coverage and is lower than that of many aerospace peers.

We expect GE Aerospace’s EBITDA to grow handsomely over time and think the company’s credit ratings are likely to improve.

The company plans to return 100% of available free cash flow to shareholders over the next three years through a mix of dividends and share buybacks. We don’t have a problem with the company maintaining current debt balances.

Read more about GE Aerospace’s financial strength.

Risk and Uncertainty

We assign GE Aerospace a Medium Uncertainty Rating. The company bears some remote financial risk and ongoing operational risk in its manufacturing and service business.

Most critical to the franchise are two operational risks. Complex manufacturing is subject to supply chain risk, including the materials needed to build or service an engine, as well as the people who build them. Supply chain bottlenecks or workforce disruptions could mar the company’s revenue and profitability in one or more product lines at almost any time. A more pernicious risk to long-term profitability would be posed by a flaw in one of the company’s engine designs or manufacturing quality.

From an environmental, social, and governance standpoint, the most prominent risk relates to carbon emissions from aerospace engines, though we point out that GE is developing a next-generation sustainable engine in its CFM Rise program.

Read more about GE Aerospace’s risk and uncertainty.

GE Bulls Say

• The Leap engine is installed on a growing majority of the popular Airbus A320neo family, compounding GE’s prospects for decades of profitable aftermarket revenue from its large installed fleet of engines.
• Bears vastly underestimate the incremental profits GE will make from operating leverage as commercial aerospace fully recovers and its Leap engine aftermarket program enters its profitable phase.
• Even the fleet of older engines like the GE90, which went into service in 1995 and powers most Boeing 777s, has yet to see most of its shop visits to GE.

GE Bears Say

• GE is all in on its experimental open-fan Rise design for the next generation of commercial engines, which aircraft makers might, or might not, adopt to propel new jets in the 2040s.
• Burgeoning demand for its engines could place GE Aerospace’s manufacturing and supply chain under further disruptive strain, frustrating customers and hampering efficiency.
• Engines sold with long-term service contracts effectively transfer risk to the manufacturer for its performance over time, which can result in higher-than-anticipated maintenance costs and dent the profitability of the program.

This article was compiled by Colin Laidley.