GE Aerospace Slumps: Buy the Dip or Avoid?

GE Aerospace (NYSE: GE) remains one of the most intriguing growth stories in the industrial sector, and its recent results helped highlight the case for the stock. If you think share prices reflect a kind of rolling vote on a company's prospects, then the dip is a great buying opportunity, because the company had a lot of good things to say.

The investment case for GE Aerospace

I think GE Aerospace is a great company with an exceptional leadership team and a business model (aircraft engines that can be used for more than 40 years, generating a long-term stream of high-margin services revenue) that ensures long-term growth.

However, based on its recently upgraded free cash flow (FCF) guidance of $8.9 billion to $9.2 billion for 2026, investors are going to have to have a pretty solid belief in the company's ability to generate inflation-beating cash flow growth over a long period to justify the current $354 billion market cap.

That said, if you do believe in these fundamentals, then the case for the stock just got stronger. There are three main takeaways from the results.

1. Commercial aerospace services grew

First, as discussed previously, GE Aerospace's first-quarter earnings report in April was so strong that it was puzzling that management didn't formally raise guidance. The reason came down to uncertainty about the impact of the conflict in Iran on jet fuel prices and, in turn, on flight departures and GE's commercial engine services revenue.

However, commercial engines and services (CES) grew 26% year over year in the second quarter, and CES services orders grew 22% year over year, taking overall CES services orders growth to a whopping 34% in the first half. As such, management now expects its CES services revenue to grow by $5 billion in 2026, up from its April estimate of $4 billion.

2. GE Aerospace is winning the supply chain battle

Second, the aerospace industry has faced supply chain issues since the pandemic ended, but it appears GE is winning the battle. Not only did management raise expectations for LEAP engine deliveries by a high-teens percentage from a previous estimate of 15%, but CEO Larry Culp also said, "We think about '27 and frankly beyond, it's much more a supply-side challenge than it is demand."

If GE is winning the supply chain battle, then investors can look forward to upside potential in 2027.

3. Spare engine ratio will normalize

Investors were spooked early in the year when management disclosed the pickup in LEAP deliveries relative to higher-margin engine spare deliveries -- the so-called spare engine ratio. A lower spare-engine ratio will put pressure on margins in 2026. Still, CFO Rahul Ghai noted that the spare-engine ratio should gradually normalize as GE progresses into 2027.

A stock to buy

As noted, the stock looks richly priced, but if you were comfortable with the assumptions over long-term growth for a business with a powerful recurring revenue model before these results, then you will definitely be more comfortable buying/holding the stock after them.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE Aerospace. The Motley Fool has a disclosure policy.