On Monday, Bernstein SocGen Group expressed continued confidence in GE Aerospace (NYSE: GE) and maintained its Outperform rating.
GE Aerospace experienced a notable drop in its stock value during the last quarter, as investors shifted away from aftermarket stocks. This trend was initiated by GE's third-quarter earnings report, which indicated a 1% decrease in internal shop visits, sparking concerns about the sustainability of the aftermarket boom.
The company's shares took a further hit following Safran (EPA:SAF)'s Capital Markets Day, where Safran projected a mid-single to high-single-digit growth rate for spares revenues, in contrast to GE's guidance of low double-digit growth.
A reduction in the company's price target from $225.00 to $209.00 was attributed to a revised lower relative EV/EBITDA multiple of 112%, down from the previous 119%, and a slightly more conservative view on Defense margins for the year 2025.
Despite these challenges, Bernstein SocGen's analysts believe that the aftermarket for GE Aerospace remains robust. They argue that shortfalls in original equipment (OE) can lead to increased life extensions for existing aircraft, which in turn supports the aftermarket and potentially leads to higher short-term margins.
Bernstein SocGen sees GE Aerospace as an appealing investment opportunity, particularly for those who have faith in the long-term value of the aftermarket. The firm points out GE's established customer base and anticipates an increase in shop visits for legacy aircraft.
The analysts also expect the company to gain from growth in shop visits, pricing power, and operational leverage once the issues with parts availability are resolved, which is expected to happen sooner for the aftermarket than for entire engines or new aircraft production.
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