After 84% Gain, Here’s How We’re Playing GE Aerospace Right Now
GE Aerospace is managing expectations as the U.S.-Iran conflict continues. This is how we're managing our position.
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Two years have passed since we first recommended GE Aerospace (GE) . This company was created from the remains of General Electric, after it spun off its energy division into GE Verona (GEV) , and its healthcare division into GE HealthCare (GEHC) .
GE Aerospace shares have nearly doubled over the past two years, but the market’s reaction to this week’s earnings report gives us pause. The Ohio-based company beat earnings estimates by a wide margin, $1.86 vs. analysts’ estimates of $1.60. Revenues of $11.6 billion were also well ahead of estimates of $10.7 billion.
Flying High
GE Aerospace provides jet engines and related components for civilian and military planes. High demand for air travel was cited as a reason for the strong quarter, which ended in March. The U.S.-Iran conflict, which led to a sharp increase in energy prices, started toward the end of that quarter.
However, despite the big earnings beat, GE Aerospace didn’t raise estimates for the year. Full-year EPS guidance remained in a range from $7.10-$7.40. Although GE officials remarked that earnings were trending toward the upper end of that range, analysts were hoping for a bump to the $7.50 area.
Two Possibilities
There are two possible explanations for GE Aerospace’s reluctance to raise full-year earnings guidance.
1. GE is managing expectations. This week’s report was the fourth consecutive significant beat for the company. As a result, the bar for what constitutes a successful quarter is constantly being raised.
2. GE is legitimately concerned that energy prices will remain high for an extended period, due to the U.S.-Iran conflict.
What if both are true?
For GE, it makes sense to slow down the express train of ever-increasing expectations. Lower the bar, and it’ll be easier to rise above it.
At the same time, it’s difficult to believe that the U.S.-Iran conflict will end soon. Based on past conflicts, the path to peace is likely to be a long road.
Let’s Go to the Chart
GE Aerospace has formed a bearish head-and-shoulders pattern (shaded blue). The stock’s recent sharp pullback occurred on heavy volume (arrow), an indication that there may be some institutional selling of the stock.
In addition, GE is trading below its 50-day (blue) and 200-day (red) moving averages.
Bottom Line
Our position in GE Aerospace has grown by 84%, from $153 in April of 2024 to $282 today. We will reduce our shares by half, locking in a gain while trimming the position to slightly less than its original size.
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At the time of publication, Ponsi was long GE.
