RTX - GE Aerospace: First Standalone Results Back Up Premium Valuation

2024-05-06 16:25:03 ET

Summary

• GE Aerospace reported strong execution in its first standalone quarter, growing revenues and orders by 16% and 34% YoY respectively and upgrading its full-year guidance.
• Similar to recent results by peer RTX, original equipment showed a strong Q with total orders surging 80% YoY for a book-to-bill ratio of 1.9x while services growth slightly weakened.
• Better pricing and a favorable mix across segments drove margins 140bps higher to 19%, positive working capital impacts further drove a 100%+ YoY growth in FCF.
• I reiterate shares at Overweight and increase my YE24 price target by 21% to $200/sh on higher estimates and an adjusted 28x multiple on 26E FCF/sh (~10% premium to the closest peer Safran).

I initiated my coverage of GE Aerospace ( GE ) following the long-awaited spin-off of General Electric's last remaining other division, Vernova, in early April. Since then, shares have continued their strong performance, being up ~12% vs. roughly flat peers. Despite my last note being only one month old, I believe it is appropriate to update my thesis given the significant post spin-off buzz and the company's first standalone earnings....

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