GE Aerospace (NYSE: GE) had a terrific first quarter of 2024. Reporting as part of General Electric last week while also reporting breaking out its own results, the industrial airplane engine manufacturer grew its sales 15% year over year, operating profits 24%, and generated free cash flow (FCF) in excess of reported profits.
Wall Street was enthusiastic about the results, and on Monday, investment bank Jefferies raised its price target on GE Aerospace stock to $185 per share, recommending the stock as a buy.
Is GE Aerospace stock a buy?
Drawing the "curtains close on consolidated GE" and shifting attention to GE Aerospace, Jefferies was encouraged when GE raised its 2024 earnings guidance despite lowering sales guidance. Profits are growing faster than expected, with GE boasting a 140 basis point improvement in operating profit margins and nearly doubling quarterly FCF to $1.7 billion.
I've noted elsewhere my worry that GE seems expensive at 51x earnings. Despite Jefferies' optimism, GE Aerospace may fail to grow as fast as it needs to in order to justify this price-to-earnings (P/E) ratio. Today, let's focus on the company's FCF projections...and whether those might better justify the stock price.
GE generated $4.7 billion in Aerospace FCF over the last 12 months. Over the course of 2024, management says this number will grow to $5 billion. But here's the thing: $5 billion FCF is better than the $4.5 billion in profit GE is expected to report. It would also be 39% better than the $3.6 billion in FCF GE generated in 2023.
Assuming GE hits its $5 billion target, at $180 billion in market capitalization, this would value the stock at 36x FCF. That's actually not a bad valuation -- presuming GE can continue growing FCF at 39% annually beyond 2024.
Easier said than done, of course. But if you're looking for a bull argument for buying GE Aerospace stock -- even after it's doubled over the past year -- that's the best one I've got.
Should you invest $1,000 in GE Aerospace right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.
