GE Aerospace(NYSE: GE) was once a part of the sprawling General Electric conglomerate, the industrial titan that built everything from light bulbs to jet engines and was, for a time, the most valuable company on the planet. However, the conglomerate struggled mightily to maintain its growth. Beginning in 2017, its stock began a downhill slide, plummeting as much as 80% over a three-year period as it grappled with a sprawling business, mounting debt, falling cash flow, and significant management turnover.
Since then, General Electric has undergone a dramatic transformation. In November 2021, it announced it would spin off its businesses into three separate publicly traded companies. GE Healthcare Technologies(NASDAQ: GEHC) spun off in early 2023. In April of this year, it spun off GE Verona(NYSE: GEV), leaving GE Aerospace with control of the fabled GE ticker.
GE Aerospace looks to blaze a trail as an independent company focused on building and maintaining the engines that power many of today's airplanes. The stock has increased significantly over the past year, which may have you wondering if it's too late to scoop up shares of the newly formed aviation company. Here are some things you'll want to consider first.
GE Aerospace is positioned for growth
GE Aerospace is an industry leader that designs and manufactures jet and turboprop engines for various aircraft, including commercial jets, military aircraft, and business jets.
The company has a 50/50 joint venture (JV) with Safran Aircraft Engines called CFM International. Through the JV, the two companies produce the LEAP engine, which is used in the Boeing 737 MAX, Airbus A320neo, and COMAC C919. As of 2020, CFM International dominates the market with a 39% share of the global aircraft engine market share.
While selling engines is an integral part of GE Aerospace's business, the real money-maker is its aftermarket business. This is where it performs maintenance, repair, and overhaul services on its engines. Aircraft engines require regular servicing to ensure optimal performance and safety, and GE Aerospace benefits from demand for its parts and services, which provides it with a steady stream of revenue long-term.
Image source: Boeing.
Longer-term trends are favorable
The global aviation industry is projected to see sustained growth, fueled by rising incomes worldwide and more air travel. According to a report published by Precedence Research, the aircraft engine market size is projected to reach $187 billion by 2032, growing nearly 8% annually. The same report cites the International Air Transport Association (IATA), which says there could be 8.2 billion travelers worldwide in 2037.
As demand for air travel grows, airline fleet demand will increase, meaning more engines, parts, and overhauls, which GE Aerospace is well positioned to capitalize on. This demand should be a strong tailwind for the aviation company. According to The Fly, analysts at UBS are modeling a compound annual growth of 13% over the next five years from GE Aerospace's aftermarket business, which is why the bank has a price target of $201 for the company. That implies a 22% upside over the next year.
Is it too late to buy GE Aerospace?
GE Aerospace is priced around 32 times its one-year forward earnings. Aerospace stocks tend to command a premium because of the long-term growth potential, but it is a premium compared with RTX and Lockheed Martin, which are both priced around 17 times one-year forward earnings.
Additionally, ongoing supply chain issues could result in fewer deliveries, which could result in the company missing its delivery target for the year. With the stock priced at a premium valuation, near-term headwinds may weigh on GE Aerospace stock in the short term.
With that said, the company is in an excellent competitive position as one of the top aircraft engine manufacturers in the world, and demand for its services will only grow. For that reason, it's not too late to buy GE Aerospace. Instead, it's a stock you want to add to over time with solid upside potential for the next decade and beyond.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and RTX. The Motley Fool has a disclosure policy.
