To The Moon

$GE Aerospace(GE)$ will be reporting their fourth quarter results before markets open on Thursday (23 Jan). Analysts are bullish on the maker of airplane engines and other parts.

Since conglomerate General Electric split into three companies, this will be GE’s third full quarter reporting. But do note that GE stock fell after its last quarter report.

The consensus estimate for its fourth-quarter earnings has increased 6.3% in the past 90 days. The company has an impressive earnings surprise history, having outperformed the consensus estimate in each of the preceding four quarters, the average surprise being 15.6%. 

Consensus Estimate for GE’s fourth-quarter total revenues is pegged at $9.5 billion, indicating a decline of 49% year over year.

The consensus estimate for earnings per share is pegged at $1.04 which is higher than $0.82 for the same period last year.

General Electric (GE) Last Earnings Call Sentiment Is Positive

Though GE shares have a negative 3.31% change since its last earnings call on 22 Oct 2024, the earnings call sentiment is positive, the call highlighted significant growth in orders, revenue, and cash flow, with a strong performance in the Commercial Engines & Services segment and raised guidance for the full year. However, challenges remain in Defense & Propulsion Technologies, ongoing supply chain constraints, and the impact of inflation and investments. The delay in the 777X program by Boeing is also a concern.

General Electric (GE) Positive Guidance

During GE Aerospace's Q3 2024 earnings call, the company reported a robust 28% increase in orders, with revenue up 6% and operating profit rising by 14%. Adjusted EPS increased by 25%, while free cash flow reached $1.8 billion with a conversion rate exceeding 140%. In the Commercial Engines & Services sector, orders grew by 29%, supported by a 20% increase in both services and equipment, leading to a backlog of $149 billion. Services revenue climbed 10%, contributing to a 16% increase in operating profit.

The Defense & Propulsion Technologies segment saw a 19% rise in orders, although profit declined. GE Aerospace raised its full-year guidance, projecting operating profit between $6.7 billion and $6.9 billion and adjusted EPS between $4.20 and $4.35, with free cash flow expected to reach $5.6 billion to $5.8 billion.

The company is also investing $1 billion in MRO over the next five years and collaborating with suppliers to meet increasing demand.

Factors To Look At For GE’s Quarterly Performance

Commercial Engines & Services business

The growing installed base and the higher utilization of engine platforms across commercial and defense end markets are expected to have benefited GE Aerospace in the fourth quarter. Solid demand for LEAP, GEnx & GE9X engines and related services, supported by growth in air traffic, fleet renewal and expansion activities, is likely to have aided the Commercial Engines & Services business.

The consensus mark for the Commercial Engines & Services business’ total sales is pegged at $7.3 billion, indicating a 6.1% rise on a sequential basis. In the third quarter, orders were up 28%, driven by robust demand, and more than 20% growth in both services and equipment in the Commercial Engines & Services segment.

Defense & Propulsion Technologies

The Defense & Propulsion Technologies business has been reaping the benefits from the growing popularity of the company’s propulsion & additive technologies, critical aircraft systems and aftermarket services in the defense sector. Rising U.S. & international defense budgets, positive airline & airframer dynamics and robust demand for commercial air travel are anticipated to have boosted GE’s performance in the fourth quarter. The consensus mark for the Defense & Propulsion Technologies business’ total sales is pegged at $2.6 billion, indicating a 13.9% rise on a sequential basis.

For the third quarter, orders increased but profit declined. Engine deliveries were up sequentially but down year-over-year. The company has also been making investments to expand and upgrade manufacturing facilities in the United States and overseas. These investments are likely to have enabled GE Aerospace to boost its operational capacities and cater to the increased demand from its commercial and defense customers. This, along with its focus on operational execution, robust backlog level and aim to generate healthy free cash flow, is likely to have bolstered the company’s performance.

Increased Investments and Inflation Impact

The company’s portfolio restructuring efforts involve divesting non-profitable businesses to unlock value for its shareholders. In April 2024, GE completed the spin-off of its Vernova business, finalizing its multi-year portfolio transformation. While the spin-off is likely to have impacted year-over-year top-line comparisons, it is also expected to have enhanced GE's operational focus on its core aerospace business and financial flexibility.

Higher inflation and investments partially offset the benefits of the services volume and favorable mix. This is anticipated to have positively impacted its margins and profitability in the fourth quarter. However, the company has been dealing with the adverse impacts of the high costs and operating expenses owing to certain projects and restructuring activities.

Supply Chain Constraints

Also, supply-chain challenges, such as the availability of raw materials and labor shortages, especially in the aerospace and defense markets, are likely to have affected GE Aerospace’s delivery of finished products to its customers within the stipulated time. Given the company’s extensive geographic presence, its operations are subject to global political risks and foreign exchange headwinds. A stronger U.S. dollar is likely to have hurt GE's overseas business in the quarter.

777X Program Delay Already Resolved?

In the third quarter earnings call, Boeing announced another delay on the 777X program, which may affect GE Aerospace's operational plans. So we will need to watch this closely in this upcoming reporting quarter.

General Electric (GE) Price Target

Based on 13 Wall Street analysts offering 12 month price targets for GE Aerospace in the last 3 months. The average price target is $227.75 with a high forecast of $400.00 and a low forecast of $190.00. The average price target represents a 21.47% change from the last price of $187.50.

We might not see that much a move in the price unless we see revenue from its Commercial Engines & Services went up more than 8% (which is the previous quarter growth).

Technical Analysis - Multi-timeframe

If we looked at the technicals, GE has a potential upside and have been moving in uptrend. The bullish reversal after it recover from the downwards then sideways have been successful.

There is also a nice bullish MACD crossover last year in December which allow GE to recover and continue on an upside movement.

MTF is also giving a strong uptrend signal, I would consider this stock but would watch the earnings as it has fallen after its last earnings call, so that might give me an opportunity to get in.

Summary

I would think GE might still depend on its aftermarket growth for its earnings, especially on the service side, if it can perform better than the previous quarter of 8% then we could have an earnings surprise.

I will be watching how GE would be trading today (22 Jan) closely to see how market sentiment is like for this utilities stock.

Appreciate if you could share your thoughts in the comment section whether you think GE could provide an earning surprise with much better aftermarket sales growth.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.