New GE Price Target After CEO's 'Across the Board' Raise

If Larry Culp is not the greatest corporate chief executive of all time, he is certainly in the hall of fame, at a minimum. 

As the first outsider to run what is now GE Aerospace (GE)  in the company's 126-year history, he has worked absolute miracles in resurrecting this firm from the shambles the old General Electric had been left in by his immediate predecessors. Culp, who is both chairman and CEO at GE Aerospace and has been on the job since 2018, put another excellent quarter through the hoop on Tuesday morning.

For the firm's third quarter, GE posted an adjusted EPS of $1.66 (GAAP EPS: $2.04) on adjusted revenue of $11.305 billion. GAAP revenue: $12.181 billion. The adjusted data exceeded Wall Street's expectations for both the top and bottom lines as those adjusted sales were good for annual growth of 26%.

The numbers were adjusted for a number of reasons, primarily though for $875 million in insurance related revenue that accounted for $0.27 per share towards the GAAP EPS print of $2.04. There are some firms that might have simply reported GAAP numbers without adjustments in a case where the GAAP data significantly enhanced the operating results.

From The Press Release

Culp commented:

"GE Aerospace delivered an exceptional quarter with revenue up 26%, EPS up 44%, and more than 130% free cash flow conversion. Given the strength of our year-to-date results and our expectations for the fourth quarter, we're raising our full-year guidance across the board."

Operations

Sticking to the adjusted data, as that better represents the firm's operational results, you already know that revenue was up 26%. Operating income also grew 26% to $2.299 billion as operating margin remained flat at 20.3%. 

If we flipped over to the GAAP data, operating margin improved from 19.2% to 20.7%, but that would be misleading as that was largely due to the insurance related revenue. You really have to appreciate the corporate integrity in the reporting here. The Adjusted EPS of $1.66 compares well to the year-ago period's $1.15. The GAAP EPS of $2.04 also compares well to last year's $1.56.

Segment Performance

• Commercial Engines & Services generated revenue of $8.88 billion (+27%) on orders of $10.301 billion (+5%). Operating profit grew 35% to $2.436 billion as operating margin improved from 25.7% to 27.4%.
• Defense & Propulsion Technologies generated revenue of $2.828 billion (+26%) on orders of $2.898 billion (-5%). Operating profit grew 75% to $386 million as operating margin improved from 9.8% to 13.6%.

Guidance

For the full year, GE has taken the firm's revenue guidance up to high-teen growth from prior guidance of mid-teens growth and up from 10% growth for 2024. Operating profit is now seen at $8.65 billion to $8.85 billion, up from prior guidance of $8 billion to $8.5 billion. Adjusted EPS is now projected at $6.00 to $6.20, up from previously issued guidance of $5.60 to $5.80. Lastly, guidance for free cash flow has been lifted to $7.1 billion to $7.3 billion from $6.5 billion to $6.9 billion.

Fundamentals

For the period reported, GE generated operating cash flow of $2.556 billion (+34%). After accounting for capex spending, dispositions of property, separation-related expenditures and restructuring costs, free cash flow printed at $2.362 billion (+30%).

Turning to the balance sheet, GE finished the quarter with a cash position of $13.509 billion and inventories of $11.667 billion. That left current assets of $40.074 billion. Current liabilities printed at $37.203 billion including shorter-term debt of $2.067 billion and deferred revenue of $9.852 billion. This puts the firm's headline current and quick ratios at 1.08 and 0.76, respectively. Once adjusted for those deferred revenues which are not true financial liabilities, these ratios rise to much more robust levels, 1.47 and 1.04 in that order.

Total assets amount to $128.243 billion, of which just 10.4% is labeled as goodwill or other intangibles. We like that. Total liabilities less equity comes to $109.222 billion including longer-term debt of $18.771 billion, but also another $1.081 billion in deferred revenue. This is a decent balance sheet for anyone. For a large industrial firm, this is a well above average balance sheet.

My Thoughts

Sales are growing. Margins are growing. Free cash flow is growing. Guidance is excellent. I am long this stock, and this report reaffirms my intention to remain invested in this firm. ​

Readers will see that without developing a true technical pattern that GE has remained on trend ​since August 2024. The upward trend is captured here by a Raff regression model. There has been only one break to the downside and that break was caught by the stock's 200-day SMA. The shares, currently supported by their 21-day EMA with an assist from the 50-day SMA is close to trying to break out of this model to the upside.

​​If we switch over to an Andres' pitchfork model, we still see the break to the downside in early April, but moving to the present, the shares are already breaking above the upper trendline of the model. Which model are the designers of the algorithms running the trade using? Given that I am literally the last analyst I know who still uses Pitchfork models, I am going to guess that the regression model matters more right now.

Looking at the other indicators that I most often use, relative strength is quite robust and the daily MACD is taking on a bullish posture as I write this piece. Using the $307 September high as my pivot, I go to work:

GE Aerospace (GE)

Target Price: $368

Pivot: $307

Add: Down to 50-day SMA (currently $287)

Panic: Loss of 200-day SMA (currently $236)

At the time of publication, Guilfoyle was long GE equity.