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GE Earnings: Stock Should Move Even Higher on Superb Report

We’ve lifted our fair value estimate for GE stock following the company’s excellent third quarter.

The General Electric logo appears above a trading post on the floor of the New York Stock Exchange.

Key Morningstar Metrics for General Electric

What We Thought of General Electric’s Earnings

We’ve lifted our fair value estimate for General Electric GE stock to $123 per share from $118 following its excellent third quarter. Results materially beat our expectations (which were above the FactSet consensus) 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 a favorable mix helped total aerospace margins exceed 20% for the first time in seven quarters.

Commercial aerospace shows no signs of material deceleration yet. GE’s total aerospace book/bill (orders divided by revenue) remains at 1.2 times, which indicates continued strong demand for commercial engines and other aero-related products and services. Furthermore, supply chain issues have started to improve, as aerospace’s backlog burn rates (current revenue divided by prior-quarter backlog) have steadily moved higher on a sequential basis.

Consequently, we model about $300 million more of additional aerospace operating profit. Better-than-expected working capital improvements in inventory and receivables lead us to model about $300 million more free cash flow than the top end of guidance. We now expect $5.4 billion in free cash, which implies free cash flow margins north of 8%.

General Electric Stock Price

Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Joshua Aguilar

Director of Equity Research, Resources
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Joshua Aguilar is the director of resources equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Aguilar joined Morningstar in 2016 as an associate on the financials team, and he was promoted to analyst on the industrials team in 2018 and to senior analyst in 2022. He has served as associates coordinator since 2021 and led Morningstar's diversity efforts as DEI co-chair since 2020. Aguilar has been a mentor to several associates on their paths to becoming analysts. He also has hosted a Morningstar earnings town hall, participated in analyzing Morningstar stock, and been a strong contributor through both client interactions and his General Electric stock call. Aguilar co-authored an Outstanding Research Achievement-winning piece with colleague Kris Inton on CEO compensation in 2021. He also has taught Morningstar's model to new hires for many years as part of the valuation committee.

Before joining Morningstar, Aguilar was a practicing business transactional attorney in Florida. He graduated magna cum laude with a bachelor's degree in political science and criminology from the University of Florida. He also has a Master of Business Administration from Rollins College and a Juris Doctor from Wake Forest University.

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