GE Aerospace's (GE, Financial) shares fell by over 3.96% today. The decline is linked to an analyst downgrade of Boeing, GE's key partner.
A Wells Fargo analyst downgraded Boeing to underweight, citing ongoing cash-flow difficulties that may persist into Boeing's next investment cycle. This is significant for GE (GE, Financial) as it is the leading engine provider to Boeing. Their joint venture, CFM International, supplies the sole engine for the Boeing 737 MAX, and GE provides engines for the Boeing 777X and one of the two engine options for the 787.
Any delay in new Boeing model developments will impact GE (GE, Financial), which develops engines in anticipation of Boeing's needs. GE earns revenue from the multiyear servicing of airplane engines sold to new airplanes.
While this is an analyst's opinion, it is grounded in the reality that Boeing is unlikely to meet its medium-term cash-flow targets, and new airplane development will take years and significant investment.
Still, Boeing is not stopping airplane manufacturing. Although a potential equity raise to fund new airplane development isn't favorable for Boeing shareholders, it should not affect GE (GE, Financial) investors. GE Aerospace will benefit from airplane production regardless of Boeing's funding method.
According to the latest stock data, GE Aerospace (GE, Financial) is currently priced at $167.70 with a market capitalization of $181.84 billion. The stock has a P/E ratio of 39.74 and a P/B ratio of 9.78. Despite the recent downturn, GE Aerospace's stock price remains close to its 10-year high, reflecting investor confidence.
However, investors should be cautious of several warning signs. The company's Altman Z-score of 2.7 places it in the grey area, indicating some financial stress. Additionally, revenue per share and gross margin have been declining for the last five years, with an average gross margin decline rate of -2.8% annually. Another concern is the company's operating margin, which has seen a steep decline of -19.5% per year over the past five years.
On the positive side, GE Aerospace (GE, Financial) has a Beneish M-Score of -2.87, implying that the company is unlikely to be engaging in financial manipulation. Moreover, the stock's dividend yield is close to a 1-year high, which suggests a potential for income-focused investors.
Given these mixed signals, the stock's valuation remains a point of interest. According to the GF Value metric, GE Aerospace is significantly overvalued with a GF Value of $66.44. Therefore, potential investors may want to consider these factors carefully before making any investment decisions.
