GE Aerospace: A 91% Return or a Valuation Trap?

GE Aerospace's first full year as an independent company was not a cyclical rebound. It was a structural reset, proving that a focused, lean operating model can unlock superior financial performance. The numbers tell the story: the company generated $38.7 billion in revenue and $7.3 billion in operating profit for the full year 2024, representing 10% and 30% year-over-year growth respectively. This wasn't just growth; it was margin expansion, with the operating profit margin improving by 330 basis points. The market's validation has been even more dramatic, with the stock posting a rolling annual return of 91.8% and a 22% gain over the past 120 days.

The operational driver behind this transformation was the proprietary FLIGHT DECK model. This lean system tackled a critical constraint: the supply chain. By the second half of the year, material input from priority suppliers had improved by 26% compared to the first half. That operational discipline directly fueled revenue growth, supporting a 17% increase in Commercial Engines & Services revenue in the second half. The model created a virtuous cycle: better input flow led to higher output and service revenue, which in turn drove profitability.

This standalone year was a clear demonstration of value creation. The company returned more than $6 billion to shareholders in 2024 and announced a new $7 billion share repurchase plan for 2025. The financial results and the stock's explosive performance reflect a market confident in the new structure. GE Aerospace has moved beyond being a division of a conglomerate; it has proven it can operate as a high-margin, capital-efficient aerospace leader on its own.

The Growth Engine: Services, Supply Chain, and Strategic Investments

GE Aerospace's growth is built on a durable foundation of long-term contracts, a strategic push to strengthen its manufacturing backbone, and a disciplined return of capital to shareholders. These three pillars work together to create a resilient engine, one that is less vulnerable to the cyclical swings of new aircraft deliveries and more focused on the recurring revenue of services and the efficiency gains from internal investment.

The most powerful driver is its commercial services backlog, which exceeds $140 billion. This isn't just a large number; it's a multi-year revenue guarantee. It provides a predictable stream of income as global flight departures continue their recovery and as airlines extend the service life of their existing fleets. This backlog underpins the company's confidence in maintaining its 2025 guidance, which calls for revenue growth in the mid-teens for its Commercial Engines & Services segment. The strength is already evident, with services revenue growing 17% in the first quarter of 2025, driven by a surge in spare parts and shop visits. This recurring model offers a high degree of visibility and stability, a key advantage as the industry navigates macroeconomic uncertainty.

To ensure it can meet the demand embedded in this backlog, GE is making a significant, targeted investment in its own capacity. The company announced plans to invest nearly $1 billion in its U.S. factories and supply chain, a commitment nearly double last year's. This isn't a broad, unfocused capex push. It's a strategic allocation aimed at specific choke points: expanding capacity for the high-demand LEAP engine, scaling advanced manufacturing techniques like 3D printing and ceramic matrix composites, and strengthening the external supplier base. The goal is clear: to improve delivery reliability, enhance quality, and ultimately, boost margins. This investment, coupled with the company's proprietary FLIGHT DECK operating model, is designed to tackle supply chain constraints head-on and accelerate output.

Finally, the company is signaling deep confidence in its cash-generating ability by returning substantial capital to shareholders. Building on a strong 2024 where it returned more than $6 billion, GE Aerospace has initiated a plan to return approximately $24 billion to shareholders from 2024 through 2026. This includes a 30% dividend increase announced for 2025, a move that underscores management's view of its free cash flow as robust and sustainable. The company's 2025 guidance assumes greater than 100% free cash flow conversion, a metric that highlights the efficiency of its operations.

The bottom line is a company executing a coherent, multi-year strategy. Its growth is anchored by a massive, long-term services backlog. It is investing strategically to ensure it can fulfill that backlog efficiently and profitably. And it is rewarding shareholders with a return of capital that reflects its strong cash generation. This combination of durable demand, operational improvement, and disciplined capital allocation defines a resilient growth engine.

Valuation and Forward Scenarios: Growth vs. Price

GE Aerospace's stock has been a standout performer, but its premium valuation demands scrutiny. The current forward price-to-earnings ratio of 42x is a significant multiple above the aerospace & defense peer average of 27.1x. This gap signals that the market has already priced in a high degree of future success, embedding strong growth expectations into the share price. The question is whether the company's financial outlook can justify that lofty premium.

Management's raised 2025 guidance provides a solid foundation for the optimism. The company is projecting double-digit revenue and EPS growth for the full year, with a key metric being greater than 100% free cash flow conversion. This level of cash generation is a powerful validation of the business model's strength and efficiency. The company has already delivered on this promise, with free cash flow conversion exceeding 130% in the third quarter of 2025. This exceptional cash generation supports the premium valuation by demonstrating the company's ability to convert top-line growth into tangible shareholder returns, a dynamic that has been a major driver of its stock performance.

Yet the primary risk to this scenario is a disruption in the commercial aviation recovery or a failure to sustain operational improvements. The company's guidance assumes a growth of low-single-digits vs. prior growth of mid-single-digits for its commercial segment, a notable deceleration. This sensitivity highlights the vulnerability to a slowdown in air travel demand. Furthermore, the company's supply chain gains, which have been critical to its execution, are not guaranteed. CEO H. Lawrence Culp has emphasized that the proprietary FLIGHT DECK operating model is key to tackling constraints. Any setback in material inputs or production output could pressure margins and jeopardize the promised free cash flow conversion, directly challenging the valuation.

The bottom line is a story of execution risk versus premium pricing. GE Aerospace is delivering on its raised guidance with impressive cash flow, which supports its high multiple. However, the stock's valuation leaves little room for error. It assumes a smooth continuation of the commercial recovery and flawless execution of its operational improvements. If either of these assumptions falters, the stock could face significant pressure as its growth story fails to meet the already-embedded expectations.

The Verdict: A 91% Return or a Valuation Trap?

The stock's 91.84% rolling annual return is a powerful testament to its outperformance. Yet this surge is largely a rebound from a depressed 2024 base, not a signal of inexorable momentum. The real story is the disconnect between this stellar price action and the company's premium valuation. Trading at a forward price-to-earnings ratio of 42 and a price-to-sales multiple of 7.7, GE Aerospace is priced for perfection. The market is betting that its raised 2028 targets are not just achievable, but exceeded.

The company's own raised guidance provides the roadmap. Management has committed to achieving ~$11.5 billion of operating profit and ~$8.5 billion of free cash flow in 2028, both up $1.5 billion from its prior outlook. This would represent a massive expansion in profitability and cash generation. If executed, these numbers could justify the current premium, as they imply a path to a more normalized valuation multiple. The key watchpoint is 2025 execution against this raised guidance. The company has already signaled a significant upgrade, now expecting low- to mid-twenties growth in Commercial Engines & Services revenue and operating profit of $8.45 to $8.65 billion for the year. This is the critical test: can the company deliver on this ambitious near-term ramp?

The bottom line is a high-stakes bet on operational excellence. The 91% return is a reward for past execution, but the valuation leaves little room for error. The path forward hinges on the company's ability to convert its massive backlog and operational improvements into the promised profit and cash flow. For now, the stock is a valuation trap if growth falters, but a compelling growth story if the raised targets are met.