New GE Target Price Amid Strong Execution

GE Aerospace GE released the firm's first quarter financial results on Tuesday morning. For the three-month period ended March 31, GE Aerospace posted an adjusted EPS of $1.49 (GAAP EPS: $1.83) on adjusted revenue of $9.935 billion. Adjusted revenue printed at $9.001 billion. The adjusted earnings print easily beat Wall Street, while the adjusted revenue print fell just short of consensus view. Haven't seen much "adjusted" revenue, have you? Usually, revenue is revenue.

Well, during the quarter, GE generated $934 million in insurance-related revenue, which is not part of the core business and thus, adjusted revenue lower to better reflect the state of the business. Honestly, in the C-suite? Gotta love CEO Larry Culp. Total revenue and adjusted revenue were both good for year-over-year growth of roughly 11%. The EPS print was also adjusted lower, for both that insurance-related income and non-operating benefits.

Operations

On the GAAP level, as revenue grew 11%, profits increased 13% to $2.245 billion, as profit margin improved from 22.2% to 22.6%. This led to a GAAP EPS of $1.83, which was up from the year-ago comp of $1.58. Once adjusted lower, as revenue increased 11%, operating income increased 38% to $2.146 billion as operating margin improved from 19.2% to 23.8%. The put adjusted EPS at $1.49, up from the year-ago comparison of $0.93.

Segment Performance

• Commercial Engines and Services: Orders were up 15%, as revenue increased 14% to $6.977 billion. This led to operating income of $1.92 billion (+35%), and an operating margin of 27.5% (up from 23.3%). Equipment sales were up 8.9% to $1.858 billion, while services driven revenue was up 16.6% to $5.118 billion.
• Defense and Propulsion Technologies: Orders were up fractionally, as revenue increased 1% to $2.324 billion. This led to operating income of $296 million (+16%), and an operating margin of 12.7% (up from 11.1%). Defense and Systems equipment sales, and Propulsion equipment sales were up a combined 4.1%, while services driven revenue contracted 2.2%.

Fundamentals

For the period reported, GE generated operating cash flow of $1.543 billion. Out of that number came capex spending of $208 million, separation cash expenditures of $76 million and restructuring cash expenditures of $31 million. This left free cash flow of $1.441 billion. "Out of that" the firm repurchased $1.965 billion worth of common stock for the corporate treasury and paid out $302 million in cash dividends to shareholders.

Turning to the balance sheet, GE ended the quarter with a cash position of $13.405 billion and inventories of $10.504 billion, putting current assets at $37.575 billion. Current liabilities add up to $34.941 billion including short-term debt of $2.084 billion and deferred income (including contract liabilities), which is not a true financial obligation, but one of goods and services owed, of $9.624 billion.

At the headline level, GE's current and quick ratios stand at 1.08 and 0.77, respectively, which more or less passes muster, but not easily. However, once adjusted for that deferred income, these ratios rise to a more robust 1.48 and 1.07, which is just fine for a large industrial business.

Total assets amount to $124.123 billion, including $38.01 billion in invested securities not considered current that could be liquidated if need be. Just 10.5% of total assets are intangible in nature, which is more than acceptable. Total liabilities less equity comes to $104.654 billion, including $17.487 billion in long-term debt.

Guidance

The firm reiterated its previously-issued full-year guidance, which may have been somewhat conservative. For the full fiscal 2025, GE still sees low double-digit revenue growth, up from growth of 10.1% for 2024. The firm sees operating income of $7.8 billion to $8.2 billion, up from $7.3 billion in 2024. GE projects adjusted full-year EPS of $5.10 to $5.45, which would be up from $4.60 in 2024, but at the midpoint short of the $5.42 Wall Street consensus.

Here's what has investors excited this morning. GE sees full year free cash flow of $6.3 billion to $6.8 billion, up from $6.1 billion in 2024. Within the numbers, the firm sees revenue growth in the mid-teens for the Commercial Engines & Services segment and growth in the mid to high single digits for the Defense & Technologies segment.

Most impressively, this guidance was reiterated with the impacts of announced tariffs assumed. That said, any further escalation of the current trade war with U.S. trading partners could not be assumed.

The CEO on the Guidance

From the press release, CEO Larry Culp commented:

"The macroeconomic dynamics we are operating in today require us to take a number of strategic actions, such as controlling costs, and leveraging available trade programs. Based on what we know today, these actions, along with our solid first quarter and commercial services backlog of over $140 billion, enable us to maintain our full-year guidance."

My Thoughts

Clearly, GE is executing at a high level as the firm has since Culp showed up, cleaned house and split the firm into three viable businesses. Cash flows are strong. The balance sheet is strong. Returns to shareholders, while I might be more cautious about, are strong. I had been long this stock for quite a while before making it one of my cuts as these markets started to falter.

This release has me wanting to get back in the name, especially with some of my defense stocks taking it on the chin on Tuesday morning. I made my last sale at $207.10 on March 3. I could have gotten back in much lower, but alas, I did not. At least the shares are still trading nicely below that exit price.

Note that GE put together a double-top pattern of bearish reversal that has run its course. The shares bottomed at $159.60 after dropping below the $188 downside pivot. Note that the algorithms supported GE at the same level in early April as they had back in December. The shares have since waffled around the all-important 200-day SMA ever since, losing that line on Monday and regaining it on Tuesday morning.

Now, GE comes up against its own 21-day EMA, which would get the swing crowd excited, as relative strength and the stock's daily MACD (both still soft) start to show improvement. Do I buy GE here, just below its 21-day EMA? No. I either initiate as that line is taken on momentum or upon failure, as the 200-day line is retested.

GE Aerospace

Target Price: $225

Pivot: 50-day SMA (currently $196.70)

Initiate: On test of 200-day SMA or above the 21-day EMA on momentum

Panic: Loss of 200-day SMA and then resistance at that line.

At the time of publication, Guilfoyle had no positions in any securities mentioned.