GE Aerospace reported 24Q3 revenues of $9.8 billion, up 5.8% vs. the prior year; GAAP EPS from continuing operations was $1.56, compared with 23Q3’s $0.20; and non-GAAP EPS was $1.15 vs $0.92. Results exceeded my estimates of $1.18 for GAAP EPS and $1.09 for non-GAAP adjusted EPS.
Revenues in the Commercial Engines & Services (CES) segment increased 8.5% to $7.0 billion. Services revenues grew 10%, due to higher spare parts sales, higher internal shop visit work scopes (?) and improved pricing. Equipment revenues rose 5%, as customer mix and price offset lower unit volume. Engine delivery volume was up 25% sequentially but down 4% vs. the prior year. LEAP engine unit deliveries increased 23% sequentially. CES segment profit rose 16.4% to $1.8 billion, with segment margin increasing 180 bp to 25.7%, driven by higher services volume and price, offset partially by cost inflation and investments. Orders increased 29%, but the market is increasingly concerned about the ability of the company to convert orders into deliveries and sales.
In Defense & Propulsion Technologies, segment profit declined 18.2% on a 1.7% increase in revenues. Segment margin fell 240 bp to 9.8%, due to cost inflation, an unfavorable engine mix and investments that were only partially offset by higher prices. Orders rebounded 19%.
Management has maintained its 2024 revenue growth guidance of high single-digits and raised its operating profit guidance from $6.5-$6.8 billion to $6.7-$6.9 billion, its adjusted EPS guidance range from $3.95-$4.20 to $4.20-$4.35 and its free cash flow guidance from $5.3-$5.6 billion to $5.6-$5.8 billion.
My updated projections, which reflect 24Q3 results and management’s guidance, show 2024 revenues of $38.0 billion, GAAP EPS of $5.55 and non-GAAP EPS of $4.35. For 2025, I project GAAP EPS of $5.39 and non-GAAP EPS of $4.94.
Although I have raised my estimates slightly, I am maintaining my price target of $180, which equates to a forward P/E multiple of 33.4 times projected 2025 GAAP EPS and 36.4 times projected 2025 non-GAAP EPS. With the stock’s 0.6% dividend yield, the potential 12-month total return is 2.5%. My performance rating remains at “3” (Neutral).
A key concern is valuation. While the company is benefiting from increasing commercial engine deliveries and shop visits, the pace of the recovery has been slower than expected, given the size of its backlog and strong order growth. Management reports progress in addressing the supply chain challenges which it says are a major cause of the delays, but the inability to fill orders on a timely basis raises the risk of order cancellations, especially if the economy takes a turn for the worse. GE’s valuation is well above peer group averages, so its forward P/E multiple will almost certainly decline over time, as reflected in my assumed forward valuation multiples.
This is a summary of my recent research report on GE Aerospace (GE). To obtain a copy of the full report, please reach out to me using the contact information provided below.
October 27, 2024 (Report published on October 23, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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