GE Aerospace Earnings: Margins Expand on Strong Service Revenue

Key Morningstar Metrics for GE Aerospace

• Fair Value Estimate: $170.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of GE Aerospace’s Q2 Earnings

GE Aerospace GE reported second-quarter results with strong margins, driven by its commercial engine servicing business as well as a stronger business mix in its defense segment. We have increased our fair value estimate from $167 per share to $170.

Perhaps ironically, part of the reason for such a strong margin was a slowdown of LEAP engine deliveries in the quarter. As a new engine model, LEAP does not yet create profits when delivered. The company is working through supply chain bottlenecks that hamper its ability to keep pace with demand for this engine, which powers the popular Airbus 320neo family of jets. Overall, as the commercial aviation industry deals with a shortage of new planes from Airbus and Boeing BA in particular, airlines will use their older planes a bit longer. This should also add opportunities to GE’s pipeline for service revenue on its older CFM56 engines.

In the military business, which accounts for about one-fourth of the company’s revenue, revenue was essentially flat compared with the year-ago quarter, but all the drivers of profitability worked in GE’s favor to deliver $140 million additional profit.