GE GE Aerospace
Elite engine-and-aftermarket franchise, but the price already assumes perfection; worth roughly two-thirds of the price.
The story
GE Aerospace is one of the strongest franchises in industrials. Through CFM, its joint venture with Safran, it shares a commercial narrowbody engine duopoly with Pratt & Whitney, and its widebody position is near-monopolistic. Each engine sale locks in 30-40 years of high-margin aftermarket services, and with roughly 45,000 commercial engines installed, services already make up most of profit. The company is in a long high-growth phase: LEAP deliveries are still ramping, shop visits are rising as the fleet ages and grows, and defense and narrowbody backlogs reach well into the 2030s. Growth will fade toward the economy's rate as the LEAP fleet matures and the aftermarket mix normalizes.
Year-one growth of 15% matches guidance and the 16% five-year CAGR. The 12-year horizon reflects a real moat: engine programs and installed-base services last for decades. Margin expands from 22.6% to 27% because LEAP moves past its loss-making original-equipment phase and services take a larger share; I did not use peak-cycle aftermarket pricing. A beta of 1.05 sits below the 1.2 industry anchor because recurring services revenue makes GE less cyclical than airframers or suppliers. Even with these drivers, intrinsic value probably lands near $200-230 per share, so the market is pricing in a longer or more profitable runway than I can justify.
Value drivers
| Revenue growth (Y1) | 15.0% |
| Terminal growth | 4.0% |
| Forecast horizon | 12y |
| Target operating margin | 27.0% |
| Years to target margin | 6 |
| Sales-to-capital | 1.60 |
| Beta | 1.05 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 9.7% |
| Terminal WACC | 9.5% |
Valuation bridge
| PV of explicit FCFF | 113.47B |
| PV of terminal value | 159.09B |
| Equity value | 260.88B |
| ÷ shares → per share | $251.44 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 58.23B | 15.0% | 23.3% | 11.68B | 4.75B | 6.94B | 6.32B |
| 2 | 66.39B | 14.0% | 24.1% | 13.74B | 5.10B | 8.64B | 7.18B |
| 3 | 75.02B | 13.0% | 24.8% | 15.99B | 5.39B | 10.60B | 8.02B |
| 4 | 84.02B | 12.0% | 25.5% | 18.44B | 5.63B | 12.82B | 8.84B |
| 5 | 93.26B | 11.0% | 26.3% | 21.06B | 5.78B | 15.28B | 9.60B |
| 6 | 102.59B | 10.0% | 27.0% | 23.81B | 5.83B | 17.98B | 10.30B |
| 7 | 111.82B | 9.0% | 27.0% | 25.95B | 5.77B | 20.18B | 10.53B |
| 8 | 120.77B | 8.0% | 27.0% | 28.03B | 5.59B | 22.43B | 10.67B |
| 9 | 129.22B | 7.0% | 27.0% | 29.99B | 5.28B | 24.70B | 10.71B |
| 10 | 136.97B | 6.0% | 27.0% | 31.79B | 4.85B | 26.94B | 10.64B |
| 11 | 143.82B | 5.0% | 27.0% | 33.38B | 4.28B | 29.10B | 10.47B |
| 12 | 149.57B | 4.0% | 27.0% | 34.71B | 3.60B | 31.12B | 10.20B |
Key risks
- Valuation already assumes years of flawless execution: at about 6.4x sales, any slip in growth or margin hits the stock hard
- LEAP durability fixes and supply-chain constraints (castings, forgings) could hold back deliveries and raise warranty costs
- An air-traffic downturn or cuts to airline capacity would quickly reduce shop visits and spare-parts revenue
- RISE open-fan program costs, plus competition from Pratt & Whitney's GTF and Rolls-Royce on next-generation narrowbody engines
Catalysts
- Spare-parts and shop-visit pricing staying strong as the CFM56 fleet stays in service longer and LEAP shop visits ramp
- LEAP original-equipment unit economics turning positive and margin moving above 25% sooner than planned