The New Face of GE: Why Aerospace Might Be Worth the Wait

The last big hurrah for General Electric came under the guidance of Jack Welch, a CEO who was held in very high esteem on Wall Street and throughout the business community. But after his departure the company he built slowly crumbled.

That said, the company that now uses the once iconic "GE" ticker is pretty attractive. Here's what you need to know.

GE Aerospace, over a decade in the making

General Electric was once a massive and sprawling conglomerate. Although the company's roots were in the industrial sector, by the time Welch retired in 2001 the company was also in the finance business and the media sector. When the Great Recession hit between 2007 and 2009, GE's diversification into non-industrial businesses quickly turned into a negative. That was particularly true of its finance push, given the recession was felt most keenly in that sector.

Image source: Getty Images.

Subsequent leaders attempted to right the ship. Efforts included cutting the dividend, accepting government bailouts, and selling assets. But it wasn't enough, and after the board had tried letting a couple of insiders mend the company they eventually looked outside, handing Larry Culp the reins.

Culp had previously turned around industrial peer Danaher. The outsider's big plan ended up being a corporate breakup. That effort has now been completed, with GE's remaining operations separated into GE Vernova (NYSE: GEV), GE HealthCare Technologies (NASDAQ: GEHC), and GE Aerospace (NYSE: GE). Notably, Culp remained at the helm of GE Aerospace.

GE Aerospace is well-positioned

It is often interesting to watch which company a CEO selects to run when there's a breakup going on. Usually, but not always, the company the CEO picks is the one that has the best prospects for the future. In this case, GE owned some compelling assets across its portfolio, so it might not be a clear-cut indication of future opportunities. But don't ignore the fact that Culp picked GE Aerospace.

The company basically serves two broad markets, consumer air carriers and the military and defense sector. They have different dynamics, but both are likely to see material growth in the future.

The most recent quarter was particularly strong, with orders rising 18% year over year. Revenue jumped 4%, with a profit margin improvement of 560 basis points leading to a 37% operating profit advance. That said, the increase in orders is probably more exciting, given that the company has been going through a highly public transformation. That increase shows that customers haven't lost faith in GE Aerospace.

Longer-term, GE Aerospace's defense business has a nearly $17 billion backlog. That's work that should keep the company busy for years. With regard to the company's commercial-oriented business, growth in air travel over the long term will likely support strong overall performance. The company augments its service and replacement parts income streams with every jet engine it sells. In fact, while the engine sale is clearly important, the income generated after that initial sale might be even more important.

GE Aerospace's business will obviously wax and wane over time. That's the norm for cyclical industrial businesses. But with geopolitical tensions seemingly always an issue, defense spending seems likely to remain a robust support. Meanwhile, industry watchers expect a steady climb in air travel among consumers, with nearly 4% annualized passenger growth through 2043. That will lead to an additional 4 billion passengers, an increase that should support continued strength in GE Aerospace's consumer aviation division.

Is GE Aerospace worth buying today?

All in, GE Aerospace looks like a worthy company to retain the iconic "GE" ticker symbol. But that doesn't mean it is worth buying right now. The stock price has rocketed higher, more than doubling in value over the past year. Wall Street is clearly pricing in a lot of good news, noting that the price-to-earnings ratio is a lofty 50 times or so compared to an industry average of around 32 times, using the iShares U.S. Aerospace & Defense ETF as an industry proxy.

In other words, GE Aerospace looks like it is well-positioned for the future, but you should probably keep it on your wish list for now. The next bear market (or an industrial sector downturn) will probably prove a better point to add this stock to your portfolio.

Should you invest $1,000 in GE Aerospace right now?

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Danaher. The Motley Fool recommends GE HealthCare Technologies. The Motley Fool has a disclosure policy.