GE's Strong Earnings, Stock Pullback Open the Door for a Tactical Trade
Despite standout results, the market doesn't seem to care. Here's the story and my idea of how to play it.
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On Thursday morning, GE Aerospace (GE) posted what were really strong fourth-quarter financial results. Yet, the stock is taking a beating, despite an otherwise strong tape. This is that story. Grab my hand and let's go...
For the three-month period ended December 31, GE Aerospace posted adjusted EPS of $1.57 on adjusted revenue of $11.65 billion. That works out to adjusted annual earnings growth of 19% on adjusted sales growth of 20%. On a GAAP basis, EPS landed at $2.31 on $12.717 billion worth of revenue. That would be 32% earnings growth on 18% revenue growth.
I told you. This was a strong quarter. The primary reason behind the "adjustments" made to both earnings and revenue was $852 million insurance (non-operational) generated revenue.
Going through the data, GAAP net profit printed at $2.851 billion (+24%) as profit margin widened to 22.4% from 21.2%. After those adjustments, operating profit grew 14% to $2.273 billion as operating profit margin narrowed to 19.2% from 20.1%. At least we know we have an honest company under honest leadership here.
The CEO
Taken from the press release, CEO Larry Culp wrote: “With a strong fourth quarter, GE Aerospace delivered an outstanding year as revenue grew 21%, EPS was up 38%, and free cash flow conversion exceeded 100%. Our performance demonstrates how FLIGHT DECK is taking hold as we accelerated services and equipment output to fulfill our growing backlog of roughly $190 billion."
Culp added, "We enter 2026 with solid momentum to build upon these results and are well positioned to create greater value for our customers. This supports another year of substantial EPS and cash growth, and I'm confident our team will deliver."
Segment Performance
Commercial Engines & Services: Orders grew 76% to $22.842 billion as revenue advanced 24% to $9.468 billion. This produced an operating profit of $2.273 billion (+5%) as operating margin contracted to 24% from 28.2%.
Defense & Propulsion Technologies: Orders increased 61% to $4.571 billion as revenue rose 13% to $2.839 billion. This produced an operating profit of $252 million (+5%) as operating margin contracted to 8.9% from 9.6%.
Guidance
For the full year of 2026, GE is projecting adjusted revenue growth of low double digits in percentage terms which would be a slowdown from 2025's 21% pace. This is a primary reason for Thursday morning's weakness in the share price. Operating profit is seen at $9.85 billion to $10.25 billion, which would be up nicely from $9.1 billion for 2025.
Full-year adjusted EPS is seen at $7.10 to $7.40. That would be up from $6.37 for 2025 and at the mid-point far above the $7.12 that Wall Street was looking for. Free cash flow for the year is projected at $8 billion to $8.4 billion, well above the $7.7 billion print for 2025.
Fundamentals
For the period reported, GE generated operating cash flow of $2.096 billion (+59%). Out of that number came $431 million in traditional capex spending less dispositions of property and equipment worth $47 million. Another $48 million came out of that number in separation-related cash expenditures and restructuring-related expenditures. This left free cash flow of $1.76 billion (+15%).
Turning to the balance sheet, GE ended the quarter with a cash position of $12.392 billion and inventories of $11.868 billion. That puts current assets at $40.596 billion. Current liabilities add up to $38.98 billion, including short-term debt of $1.686 billion. That places GE's current and quick ratios at 1.04 and 0.74, respectively. While not "awesome" these ratios do pass muster for a large industrial-type firm.
Total assets amount to $130.169 billion. Keep in mind that investment securities intended for the long-term make up $38.788 billion of that number. This could easily be considered cash and then labeled a current asset. That would sharply improve the appearance of the above ratios. Goodwill and intangibles make up just 10% of total assets and I am fine with that.
Total liabilities less equity comes to $111.271 billion. This does include long-term debt of $18.808 billion. Remember that the cash position plus securities held as investments add up to $51.118 billion. This is a high-quality balance sheet.
The Chart
Looking at the chart above, you will see that GE has surrendered its 50-day simple moving average (SMA) on Thursday morning but is desperately trying to hang on to the lower trendline of a rising wedge pattern of bearish reversal. Should that line fail, the bears will be in control, and the stock could ultimately head for its 200-day SMA, currently down around $270. Should the line hold, however, the bulls will get at least one more rally before the pattern produces its selloff.
Relative strength is weakening Thursday morning after a very solid six weeks or so. The daily moving average convergence divergence (MACD) has suffered a couple of setbacks as the histogram of the 9-day exponential moving average (EMA) has dropped below the zero-bound and the 12-day EMA has crossed below the 26-day EMA.
Personally, I would rather get paid to take on discounted equity risk over time than simply purchase the dip in this stock. Instead of buying stock, I may go out two months and sell the March 20 $270 puts for about $4.60. If I do, I will probably also buy a like amount of the March 20 $250 puts for about $1.75 just to make sure I don't get my face ripped off.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
