GE Aerospace (GE)

Industrial conglomerate GE Aerospace (NYSE:GE) missed Wall Street’s revenue expectations in Q1 CY2025, with sales flat year on year at $9.00 billion. Its non-GAAP profit of $1.49 per share was 17.3% above analysts’ consensus estimates.

Company Overview

One of the original 12 companies on the Dow Jones Industrial Average, General Electric (NYSE:GE) is a multinational conglomerate providing technologies for various sectors including aviation, power, renewable energy, and healthcare.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Siemens AG (NYSE:SIE), Honeywell International (NYSE:HON), and Raytheon Technologies (NYSE:RTX).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, GE Aerospace grew its sales at a sluggish 4% compounded annual growth rate. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about GE Aerospace.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. GE Aerospace’s annualized revenue growth of 18.7% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, GE Aerospace’s $9.00 billion of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 11.8% over the next 12 months, a deceleration versus the last two years. We still think its growth trajectory is attractive given its scale and suggests the market is baking in success for its products and services.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

GE Aerospace has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a negative 61.1% gross margin over the last five years. That means GE Aerospace lost $61.09 for every $100 in revenue.

GE Aerospace has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.8%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, GE Aerospace’s operating margin rose by 15.9 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, GE Aerospace generated an operating profit margin of 23.8%, up 6.5 percentage points year on year. The increase was solid and shows its expenses recently grew slower than its revenue, leading to higher efficiency.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

GE Aerospace’s EPS grew at a weak 2.8% compounded annual growth rate over the last five years, lower than its 4% annualized revenue growth. We can see the difference stemmed from higher taxes as the company actually grew its operating margin and repurchased its shares during this time.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

GE Aerospace’s two-year annual EPS growth of 51.5% was fantastic and topped its 18.7% two-year revenue growth.

In Q1, GE Aerospace reported EPS at $1.49, up from $0.93 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects GE Aerospace’s full-year EPS of $5.16 to grow 8.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

GE Aerospace has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 17% over the last five years.

Taking a step back, we can see that GE Aerospace’s margin expanded by 5.4 percentage points during that time. This is encouraging because it gives the company more optionality.

GE Aerospace’s free cash flow clocked in at $1.44 billion in Q1, equivalent to a 16% margin. The company’s cash profitability regressed as it was 2.6 percentage points lower than in the same quarter last year, but we wouldn’t put too much weight on it because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, causing quarter-to-quarter swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although GE Aerospace has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.7%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. GE Aerospace’s ROIC has increased significantly over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

GE Aerospace reported $13.41 billion of cash and $19.57 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $8.94 billion of EBITDA over the last 12 months, we view GE Aerospace’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $349 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing GE Aerospace beat analysts’ EPS expectations this quarter. The company also reaffirmed its full-year EPS guidance. On the other hand, its revenue missed. Management stated that the "macroeconomic dynamics we are operating in today require us to take a number of strategic actions, such as controlling costs, and leveraging available trade programs." Overall, this was a mixed quarter. The stock remained flat at $180 immediately following the results.

Updated: May 21, 2025 at 11:04 PM EDT

Before making an investment decision, investors should account for GE Aerospace’s business fundamentals and valuation in addition to what happened in the latest quarter.

There are several reasons why we think GE Aerospace is a great business. Although its revenue growth was uninspiring over the last five years, its growth over the next 12 months is expected to be higher. And while its low gross margins indicate some combination of competitive pressures and high production costs, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. In addition, GE Aerospace’s expanding operating margin shows the business has become more efficient.

GE Aerospace’s P/E ratio based on the next 12 months is 41.6x. A lot of good news is certainly baked in given its premium multiple, but we’ll happily own GE Aerospace as its fundamentals really stand out. Investments like this should be held patiently for at least three to five years as they benefit from the power of long-term compounding, which more than makes up for any short-term price volatility that comes with high valuations.

Wall Street analysts have a consensus one-year price target of $228.12 on the company (compared to the current share price of $233.25).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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