The old General Electric, a sprawling conglomerate, no longer exists. Today the GE ticker will be attached GE Aviation (NYSE: GE)a company that focuses on just one industry: aerospace and defense.
This more focused company is a worthy place for the iconic GE ticker to land. But are GE Aerospace shares worth buying, selling or holding today?
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After the long-standing General Electric spun off several companies into their own entities and sold the rest to others, GE Aerospace survived. The company’s core activity is supplying parts and services to the aerospace and defense sectors. It is expected to be a very good niche, at least as far as Wall Street is concerned. Some industry observers predict that the consumer aviation industry will add as many as 45,000 new aircraft over the next two decades, at a cost of $3.3 trillion. GE Aerospace is well positioned to serve this growing industry and capture a large share of that market.
The company already has a $149 billion backlog of work on the civil side of its business. Add in another $18 billion on the defense side of the business and GE Aerospace’s total backlog is well over $150 billion. There is a lot of work to be done to increase the company’s revenues and profits in the coming years.
GE Aerospace managed to grow earnings 25% year over year in the third quarter of 2024, which is hard to complain about. The P&L was driven by a 6% increase in sales and a 150 basis point increase in the company’s profit margin. It looks like GE Aerospace is off to a good start as it begins its standalone life (the last spin-off of non-core assets took place in April 2024). These are all good reasons to consider buying the stock today.
The reasons to continue holding GE Aerospace are basically the same as the reasons you might want to buy it. The company appears to be well positioned to benefit from expected long-term growth in the aerospace sector. But there is a caveat here. The share price has approximately doubled in one year.
That is a very big step in a very short time. That period includes a period during which GE Aerospace and GE Verona (NYSE: GEV)the last company to spin it off was still one entity. The stock probably should have been worth more at that time. Interestingly, GE Verona’s share price has more than doubled since its spin-off in April. So perhaps the stock rallies here should be viewed with some skepticism. There could be more emotion behind the price move than facts, even though GE Aerospace appears well-positioned to serve a growing market.
But if you’re thinking long-term and have a positive view of GE Aerospace’s future, it probably doesn’t make sense to sell the stock. That’s likely to remain the case even if there is some near-term price turbulence as Wall Street determines the appropriate valuation (and therefore price tag) for the company’s stock.
That said, if you’re sitting on material gains, no one would blame you for taking some money off the table after such a rapid rise. Wall Street has a habit of letting emotions dictate stock prices, and the tendency today is to reward companies that have downsized through corporate spinoffs and exits. Specialization is preferable, at least for now (the trend towards conglomeration will probably return sooner or later). By capitalizing on investor enthusiasm, you can lock in your profits.
As for whether to buy the stock fresh or avoid it, the question is a little more difficult. After strong third-quarter results, GE Aerospace’s price-to-earnings ratio has fallen to a reasonable 36 times (it was much higher not so long ago). That is slightly higher than the average of 35 prices/earnings for the aerospace and defense industry SPDR S&P Aerospace & Defense ETF (NYSEMKT:XAR) as a proxy. So GE Aerospace appears to be fully valued. If you prefer to buy stocks when they’re cheap, this probably isn’t the stock for you. And with a minuscule dividend yield of 0.6%, income-oriented investors probably won’t be attracted to it either.
There is a lot of information to digest when it comes to GE Aerospace due to the massive overhaul that has taken place at its predecessor General Electric. Still, GE Aerospace appears to be moving in a positive direction within a sector that appears to have a positive future, which could be a reason to buy the stock. But a rapid price increase and a valuation roughly in line with its peers suggest there may be no reason to rush into buying it.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends GE Aerospace. The Motley Fool has a disclosure policy.
GE Aerospace Stock: Buy, Sell or Hold? was originally published by The Motley Fool
