On Tuesday, TD Cowen raised the rating of GE Aerospace (NYSE: GE) stock, previously known as General Electric Company (NYSE:GE), from Hold to Buy, increasing the price target to $180 from $175. This adjustment comes on the heels of GE completing the spinoff of its power and renewables assets into GE Vernova.
The firm highlighted GE Aerospace's position as the leading commercial aerospace aftermarket company, which accounts for over 75% of its profits. The company's significant engine market share, extended aftermarket visibility, and potential for consensus estimate revisions were noted as key factors for the upgrade.
The recent production issues with Boeing (NYSE:BA)'s 737Max are seen as beneficial to GE Aerospace, as it could lead to higher demand for spare parts for older engines and more profitable sales opportunities.
GE Aerospace's financial guidance through calendar year 2028 is viewed as credible by the analyst, with a strong near-term free cash flow (FCF) conversion expected, largely due to service advances on LEAP Long-Term Service Agreements (LTSAs). The company is expected to navigate the anticipated decline in CFM 56 shop visits without affecting its commercial aftermarket service sales, as LEAP shop visits are projected to increase.
The company's high LTSA attachment rate on LEAP engines, which is significantly higher than that for CFM 56 engines, is anticipated to result in increased aftermarket profits for GE Aerospace compared to its supply chain over time. The analyst believes that this structural change has been largely overlooked by investors.
The price target of $180 is based on an approximate 3% FCF yield on GE's expected $5.8 billion of calendar year 2025 FCF, which is slightly higher than the comparable yield for Safran (EPA:SAF). The report also compares the FCF yields of other companies in the sector, with TDG trading at a 3.2% yield and HWM (BMV:HWM) at a 3.7% yield. Additionally, the firm mentions a $15 billion buyback program over the next three years as a factor that could provide downside protection for the stock.
InvestingPro Insights
Recent data from InvestingPro underscores the positive momentum for GE Aerospace, with analysts revising their earnings upwards for the upcoming period and noting a significant return over the last week. The company's market capitalization stands robust at $171.12 billion, reflecting its substantial presence in the market. Despite concerns over a potential sales decline in the current year, GE Aerospace is seen as a prominent player in the Aerospace & Defense industry, which aligns with TD Cowen's optimistic outlook on the company's aftermarket dominance and profitable sales opportunities.
InvestingPro Tips also reveal that GE has maintained dividend payments for 53 consecutive years, offering investors a sense of reliability in returns. Additionally, the company has been trading at a high Price / Book multiple of 6.25, which may suggest market confidence in its asset value. Analysts predict that the company will be profitable this year, with a strong return over the last month and three months, further supporting the bullish sentiment.
For investors seeking more comprehensive insights, InvestingPro offers additional tips on GE Aerospace, which can be accessed through InvestingPro's platform. Remember to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 14 more InvestingPro Tips available, investors have a wealth of information to help guide their investment decisions.
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