Next Generation Engines And AI Will Transform Aerospace

Key Takeaways

• Advanced engine programs and digitalization are driving strong long-term revenue and margin growth through efficiency, sustainability, and increased aftermarket demand.
  
• International defense spending and supply chain improvements are fueling higher output, supporting robust cash flow and operational leverage.
  
• Heavy dependence on commercial aviation and reduced diversification expose GE to elevated risk from industry cycles, supply chain pressures, execution challenges, and intensifying global competition.

Catalysts

General Electric Company, doing business as GE Aerospace, designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems.

• Acceleration of next-generation engine programs (like CFM RISE with open fan technology and the GE9X) driven by airline demand for significantly improved fuel efficiency and lower emissions; positions GE to capture incremental orders and technology licensing revenue as decarbonization efforts intensify, positively impacting long-term revenue and earnings growth.
  
• Digitalization and AI integration across MRO and inspection processes (such as AI-enabled Blade Inspection Tools and enhanced digital twins) are increasing operational efficiency, reducing turn times by up to 50%, and enabling predictive maintenance-supporting higher aftermarket services revenue and margin expansion.
  
• Expansion and maturation of the installed base (LEAP engine base tripling, GEnx doubling by 2030), combined with fleet aging and delayed retirements, is fueling a sustained wave of shop visit activity and parts demand, directly contributing to robust and recurring services revenue and higher net margins through the decade.
  
• Growing international defense spending and increased localization requirements are accelerating demand for advanced propulsion technologies and upgrades (e.g., XA100/102, GCAP participation via Avio Aero), providing support for solid defense revenue growth and margin improvements as global tensions persist.
  
• Major supply chain stabilization and productivity gains from the FLIGHT DECK operating model and $2B+ investment in capacity are unlocking pent-up services demand and enabling double-digit output growth, translating into sustained higher free cash flow conversion and improved operating leverage.

General Electric Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming General Electric's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.2% today to 18.1% in 3 years time.
• Analysts expect earnings to reach $9.2 billion (and earnings per share of $9.0) by about July 2028, up from $7.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $8.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.8x on those 2028 earnings, up from 37.8x today. This future PE is greater than the current PE for the GB Aerospace & Defense industry at 36.0x.
• Analysts expect the number of shares outstanding to decline by 2.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.21%, as per the Simply Wall St company report.

General Electric Future Earnings Per Share Growth

Risks

• Heavy reliance on the commercial aviation sector and narrow-body engine programs (notably the LEAP and CFM56 families) exposes GE Aerospace to significant risk if there is a long-term slowdown in global air travel demand-whether from persistent economic stagnation, higher carbon taxes, or a shift toward sustainability policies limiting air travel-which could depress commercial services and equipment revenue, impacting overall profitability.
  
• GE's ongoing transition to a more focused, pure-play aerospace company following recent divestitures results in a less diversified revenue base; this structural change increases earnings volatility and reduces GE's ability to offset cyclical downturns in aviation, potentially leading to larger swings in revenue and net margins.
  
• Persistent supply chain tightness and continued material/labor inflation across GE's supplier network are expected to remain through the end of the decade; if inflation outpaces GE's pricing power or productivity improvements, this could erode operating profit margins and constrain free cash flow.
  
• GE Aerospace faces substantial execution risk and heavy initial losses in ramping up production of new platforms (such as the GE9X); delays, cost overruns, or failure to realize planned cost reductions could result in persistent negative margins in the original equipment (OE) segment and weak overall earnings growth through at least the late 2020s.
  
• Intensifying global competition from established engine manufacturers and new entrants-particularly in next-generation propulsion technologies, electrification, and digital offerings-could threaten GE's market share and pricing power, putting future revenue streams and service profit margins at risk if GE fails to maintain technological leadership or if customer adoption of alternative technologies accelerates.

Valuation

• The analysts have a consensus price target of $293.062 for General Electric based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $321.0, and the most bearish reporting a price target of just $254.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $50.8 billion, earnings will come to $9.2 billion, and it would be trading on a PE ratio of 38.8x, assuming you use a discount rate of 7.2%.
• Given the current share price of $270.31, the analyst price target of $293.06 is 7.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.