GE Aerospace will emerge as an independent company in Q1’24. Although we are clearly not early to grasp this, GE Aerospace is a business we would want to own. A dominant, high quality after-market business that is currently in the harvesting phase of its business cycle.
GE has gone through a massive debt reduction of over a $100 billion since 2018 – yes it was that bad.
Today it is a very different story. GE Aerospace post split should have a very small net debt position: ~$5-6bn.
Long term revenue growth of 7-8% driven by volume and pricing, that generates consistent high margins, FCF and high returns on capital.
We would propose that due to GE’s history on M&A, plus the lack of obvious M&A targets that for the foreseeable future FCF goes into share buybacks or dividends.
We think GE is a core holding with a ~13% IRR long term, perhaps a little higher in the next two years.
Potential Upside: $149 (+30%) over 2 years
Sensible Downside: $105 (-10%)
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