GE Aerospace Margin Widens: Is It Time to Buy Dip?

October 23, 2024 at 07:36 AM EDT

GE logo on airplane GE Aerospace

Investors may want to consider buying the dip in General Electric (NYSE: GE) because of its improved operational quality and aerospace industry position. The company has worked hard with its transformation and is a leaner, meaner machine with a widening margin and solid cash flow. The correction in the share prices following the Q3 release is a natural phenomenon related to the robust price run-up since 2022. It was triggered by solid but mixed results regarding the analysts' sentiment, setting up a buying opportunity.

The question is how deep the dip in this aerospace company may go. The initial reaction was a 10% price correction that could extend to 15% or more before it’s over. If so, the stock would present a much more attractive price point, given the high valuation. GE stock was trading above 45x this year’s earnings, more than double the S&P 500 average and well above aerospace peers.

GE Aerospace’s Mixed Results Shock the Market

GE Aerospace had a solid quarter in Q3 but failed to meet the high bar set by analysts. The company missed consensus by 440 basis points but grew by 6% on gains in both segments. Defense grew by an expected 2%, but the 8% growth in commercial was less. The critical detail is new orders; with orders up by 28%, growth should accelerate over the coming quarters.

The margin news is good. The company’s Flight Deck operating model produces results seen in the margins. The GAAP improvement is quadruple digits; the adjusted results are less robust but more impactful to investors. The adjusted operating profit margin increased by 150 basis points to drive a leveraged 14% profit growth, increased cash flow, and free cash flow. Free cash flow grew by 5% to $1.80 billion, sufficient to sustain balance sheet health and share buybacks.

The guidance is also favorable and likely to sustain analysts' interest despite the tepid revenue growth in Q3. The company raised its full-year EPS guidance for the 3rd time this year to $4.20 to $4.35, putting the mid-point above the consensus estimate reported by MarketBeat.

Analysts Sentiment Supports GE Aerospace’s Uptrend

The analysts' sentiment supports the GE Aerospace uptrend, with sentiment and boosted price targets. The 15 tracked by MarketBeat have it pegged a Buy, with only one rating a Hold and a price target 10% above the $180 level.

The consensus target was trending higher strongly before the report and continues to rise. The first revisions are reiterated buy ratings with increased price targets above the consensus. The high-end range suggests a move into the $225 to $235 range is possible, a 15% gain when reached, but even the consensus puts the stock at a new multi-year high.

Institutional activity provides another tailwind for the market. The institutions own more than 70% of the stock and have bought on balance every quarter in 2024, showing support for the former parent company’s split into three publicly traded entities.

The Technical Outlook: GE Aerospace Comes in for a Landing

The pullback in GE Aerospace price action following the Q3 release is an entry point for new money. The move better aligns the market with solid support targets, including the 150-day EMA, and will likely trigger a buying signal, possibly a strong one, given the sell-side interest. The critical target for support is near $172. A more profound decline is likely if the market moves below it and doesn’t trigger a quick rebound, with targets near $150 and $160. The larger risk is that the market will enter a trading range and remain trapped until earnings and valuation align better. That might only happen later in 2025 or 2026, so choosing a good entry is critical.

GE Aerospace GE stock chart

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GE Aerospace Margin Widens: Is It Time to Buy Dip?

GE Aerospace’s Mixed Results Shock the Market

Analysts Sentiment Supports GE Aerospace’s Uptrend

The Technical Outlook: GE Aerospace Comes in for a Landing

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