GE Aerospace and Vernova: Strategic Reshaping to Boost Revenue and Margins

What are the underlying business or industry changes driving this perspective?

• GE Aerospace is expected to continue its upward trajectory in revenue, driven by a strong demand for commercial engines and services, which should positively impact revenue growth.
• The successful completion and positive free cash flow generation from the GE HealthCare spin-off indicate a strategic reshaping of the business, potentially leading to improved net margins and earnings.
• GE Aerospace's significant investment in R&D for next-generation technologies, such as the Hybrid Thermally Efficient Core program and advanced propulsion programs, indicate a focus on long-term growth and technological leadership, likely impacting future earnings.
• The lean transformation initiative within GE Aerospace and across its suppliers is leading to improved delivery times, quality, and cost efficiencies, which should contribute positively to net margins.
• GE Vernova's focus on electrification and decarbonization, supported by substantial orders and revenue growth in renewable energy and power, indicates a strategic position to benefit from global energy transition trends, potentially impacting revenue growth and profit margins.

Figures in the charts may differ slightly from those mentioned in the narrative

How have these above catalysts been quantified?

• Analysts are assuming General Electric's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 12.9% today to 10.8% in 3 years time.
• Analysts expect EPS to reach $8.47 ($9.3 billion in earnings) by about February 2027, up from $8.06 today.

Figures in the charts may differ slightly from those mentioned in the narrative

What could happen that would invalidate this narrative?

• The reliance on challenging offshore wind projects with tough margins could negatively impact net margins and profitability in the renewables sector.
• Significant investments in R&D and the initial production of the GE9X engines might strain free cash flow and operating margins due to increased capital expenditures.
• Execution risks associated with scaling up LEAP engine deliveries by 20-25% could impact revenue and profitability if supply chain issues or production inefficiencies arise.
• The transition to becoming stand-alone entities (GE Aerospace and GE Vernova) introduces potential operational disruptions that could affect revenue growth and margins.
• The competitive landscape in commercial engines and services, coupled with the necessary investments to maintain technological leadership, may pressure earnings as the company works to enhance fuel efficiency and reduce emissions.