GE Aerospace Stock Faces Scrutiny Over Rich Valuation

GE Aerospace has seen its shares climb roughly 43% over the last year as the company prepares to report quarterly results later this week. The stock traded near $359 in pre-market activity before the release.

Valuation metrics for the company stand above peers. The forward price-to-earnings ratio is about 47 and the forward price/earnings-to-growth ratio is about 3.14. A discounted free cash flow model places a fair value near $248 per share, which is below the current market price. The sector median forward P/E sits near 20 and the sector median forward PEG near 1.68.

Analysts’ consensus estimates project second-quarter revenue rising about 16.7% to $11.85 billion and earnings per share increasing to roughly $1.85 from $1.66 a year earlier. Annual revenue is projected at about $48.8 billion for the current year and near $53.8 billion for the following year. The company has a recent record of reporting results above analysts’ expectations.

Demand for commercial aircraft and sustained defense spending in the United States and allied markets are cited as supporting factors for GE Aerospace’s revenue growth. Recent orders connected to visits between U.S. and Chinese delegations included around 200 Boeing aircraft and related equipment; many of those aircraft are expected to use engines from CFM, the joint venture between GE and Safran. Defense backlog is another component of the company’s order book.

Several institutional analysts have raised price targets in recent weeks. Susquehanna set a target at $430, Jefferies at $455 and Citigroup at $431.

On technical charts the stock reached about $383 on July 2 before pulling back toward current levels. The price sits just above a support area near $347. Some chart analysts interpret the earlier price action as the upper edge of a cup-and-handle pattern and identify a near-term resistance level around $400.

The company’s upcoming report will include details on quarterly revenue, margins, free cash flow and order backlog. Market participants are expected to review those figures to compare results against the elevated valuation metrics and recent analyst forecasts.