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Should You Buy the Dip in GE Aerospace Stock?

Amit Singh - Barchart - Wed Oct 23, 8:11AM CDT

GE Aerospace (GE) has had an impressive year so far, with its stock surging about 73% year-to-date, outpacing the S&P 500 Index's ($SPX)22.6% gain over the same period. However, the stock took a serious hit on Tuesday, closing about 9% lower after its Q3 earnings release.

While GE Aerospace posted strong earnings that beat analysts' expectations, its revenue fell short due to ongoing supply chain issues. These challenges have delayed engine deliveries, particularly for narrowbody and widebody aircraft. In the third quarter, total engine deliveries dropped by 4%, including a 6% decline in LEAP engines, a key product for the company.

Despite these short-term challenges, GE Aerospace remains optimistic. GE raised its full-year guidance for EPS and free cash flow, signaling confidence in solid demand for its products and aftermarket services. So, should investors consider buying the dip in GE Aerospace stock? Let’s take a closer look.

GE Aerospace: Positioned for Long-Term Growth

GE Aerospace plays a vital role in the aerospace industry, supplying propulsion systems, services, and components for both commercial and military aircraft. It boasts an installed base of about 44,000 commercial and 26,000 military engines. While supply chain issues have temporarily slowed new engine deliveries, long-term demand remains strong, especially for the LEAP engine, which is expected to double its fleet size by 2030. This growth promises revenue from new engine sales and highly profitable aftermarket services.

In Q3, GE Aerospace reported a 28% increase in orders, reflecting robust demand for its engines and services. With a strong backlog and healthy pricing dynamics, the company is set to enter 2025 in a favorable position for revenue growth and profitability.

Capitalizing on Booming Air Travel

GE Aerospace’s Commercial Engines & Services (CES) division continues to thrive. Orders surged 29% in Q3, driven by more than 20% growth in both services and equipment. The company’s backlog currently sits at a hefty $149 billion, 90% of which comes from services — an area with consistent, recurring revenue.

The ongoing global recovery in air travel has boosted demand for new aircraft and engine services. GE’s engines are featured in both narrowbody and widebody aircraft, positioning the company to benefit from increased commercial air traffic. Recent wins, such as contracts for the LEAP-1A-powered Airbus A320 and commitments from major airlines like Eva Air and Qatar Airways, further bolster its growth prospects.

Defense Segment Provides Stability

In addition to its commercial success, GE Aerospace is a key player in the defense industry through its Defense & Propulsion Technologies (DPT) business. Governments worldwide are increasing defense budgets to modernize their forces and sustain operations, which drives demand for GE’s military engines and services.

In Q3, defense orders rose 19%, and the division's backlog increased to $18 billion. Key programs, such as the U.S. Army’s Black Hawk helicopter upgrade and contracts like the $1.1 billion T700 series turbine engine deal, provide long-term revenue visibility. With steady government funding and new defense contracts, GE Aerospace’s defense division is positioned for growth into 2025 and beyond.

Navigating Supply Chain Challenges

While GE Aerospace faces supply chain disruptions and inflationary pressures, the company is taking steps to mitigate these challenges. It is investing in manufacturing and overhaul facilities, partnering with suppliers, and adjusting pricing to manage costs.

GE is also leveraging its FLIGHT DECK lean operating model to improve efficiency and boost production, which should help address current supply chain issues.

Should You Buy GE Aerospace Stock Now?

Despite the short-term dip following Q3 earnings, GE Aerospace remains a solid long-term investment. The company’s strong backlog, rising orders, and growth in both the commercial and defense sectors indicate solid future performance. While supply chain issues persist, GE’s steps to address these challenges should improve operational efficiency and delivery timelines.

With Wall Street analysts maintaining a bullish outlook and a “Strong Buy” consensus on the stock, the recent dip presents a potential buying opportunity for investors looking to capitalize on GE Aerospace’s long-term growth potential. Analysts’ average price target of $208.41 implies 18% upside potential from current levels.

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On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.