It's a brave new world for aerospace propulsion company GE Aerospace(NYSE: GE). After operating as an industrial conglomerate for more than 130 years, growing to become a bellwether, blue chip industrial firm, GE spun off its various core businesses. Since April 2, 2024, the history-steeped GE stock ticker symbol has represented GE Aerospace, a leaner company exclusively focused on civilian and military propulsion systems. Though it has only been a stand-alone company for two quarters now, GE Aerospace is off to a profitable start.
GE Aerospace's fantastic second quarter of 2024
The company reported strong earnings that included across-the-board growth in orders, operating margin and profit, and free cash flow.
- Orders up 18%, to $11.2 billion
- Adjusted revenue up 4%, to $8.2 billion
- Operating profit up 37%, to $1.9 billion
- Adjusted earnings per share up $0.46, to $1.20 per share
- Free cash flow up $200 million, to $1.1 billion
These second-quarter results come on the heels of a similarly strong first quarter. Clearly, GE Aerospace is building momentum as a stand-alone entity. Besides the profitable results, the company also issued upward revised guidance for full-year 2024, forecasting free cash flow of $5.3 billion to $5.6 billion, operating profits of $6.5 billion to $6.8 billion, and adjusted earnings per share of $3.95 to $4.20. The bullish revision to its guidance makes sense, since the company also reported new agreements to supply engines for 34 aircraft for four different airlines.
As part of GE Aerospace's focus on operational results, the company reported progress on its Flight Deck strategic plan. By the close of the second quarter, it had made progress growing efficiencies at the majority of its 15 largest suppliers. In total, GE Aerospace's second quarter was chock-full of encouraging news.
GE Aerospace is executing an investor-friendly capital allocation plan
The profitable operating results from the first two quarters of the year aren't the only encouraging signs for investors in GE Aerospace. Since operating as a stand-alone company, GE Aerospace has been implementing a capital allocation plan that favors investors.
The plan involves the regular payment of dividends as well as share repurchases. During the second quarter of 2024, the company repurchased 11.7 million shares and paid a dividend of $0.28 per share; the dividend is currently yielding 0.66% on a forward basis.
As part of the company's overall strategic plan that is focused on operational leanness, GE Aerospace either completed or reached agreements to sell several legacy insurance and licensing businesses. The focus for the future is very much on the core propulsion business, and management seems determined to help shareholders reap the rewards of its pinpoint focus.
GE Aerospace stock is fully valued and not a buy at current levels
Things are going well for GE Aerospace, and with the more concentrated focus on propulsion, growing sales and earnings, and an emphasis on rewarding shareholders, there is little for investors to quibble with -- except for the share price. Up over 80% in the last year, shares have come a long way very quickly. Analyzing GE Aerospace on traditional valuation metrics, especially in comparison to competitor RTX Corporation(NYSE: RTX), reveals that shares are currently not attractive on a valuation basis.
| Ticker | Price-to-free cash flow per share | Price-to-earnings ratio | Price-to-sales ratio | Price-to-book value ratio | Dividend coverage ratio |
|---|---|---|---|---|---|
| GE | 52.0 | 40.3 | 2.7 | 9.9 | 8.1 |
| RTX | 35.4 | 21.4 | 2.4 | 2.6 | 0.7 |
Data source: YCharts.
On every one of the traditional valuation metrics shown in the table, GE Aerospace is more expensive than RTX; in several cases, substantially so.
One area where GE Aerospace shows more potential than RTX is in its dividend coverage; its coverage ratio is substantially higher than RTX's. This higher ratio not only means that GE Aerospace can easily afford its dividend, it also shows there is substantial room to increase its dividend, which could be attractive to income investors.
The bottom line is that GE Aerospace is off to a strong start as a stand-alone company, but its shares are too expensive right now. Value-oriented investors should watch for a drop in share price, looking for an opportunity to buy this quality company "on sale."
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Joseph Arroyo has no position in any of the stocks mentioned. The Motley Fool recommends RTX. The Motley Fool has a disclosure policy.
