Why GE Aerospace Stock Keeps Going Down
Key Points
GE Aerospace crushed on earnings this week.
High jet fuel prices threaten to cut short the rally in engine sales.
Like a losing game of tic-tac-toe, GE Aerospace (NYSE:GE) stock has fallen three days in a row since reporting earnings Tuesday. Today's 2.5% decline (as of 11:40 a.m. ET) brings GE stock to nearly a 9% loss this week.
But why?
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GE Aerospace Q3 earnings
GE Aerospace's news this week wasn't bad. The company reported $2.25 per share in earnings on $13.3 billion in sales, beating analyst forecasts on both the top and bottom lines. Revenue rose 16% year over year as commercial airplane engine sales boomed. Operating profit on those sales soared 30% year over year, hitting $3 billion.
Best of all, GE Aerospace reported 49% growth in new orders, giving it a 1.35 book-to-bill ratio and implying sales and profits are still rising.
Wall Street worries
Despite all this good news, Bernstein SocGen Group analyst Douglas Harned just lowered his price target on GE Aerospace stock.
Mind you, the analyst still likes GE stock, says there's "strong demand" for GE engines, and recommends buying it. However, as the Iran war drags on, rising jet fuel prices are weighing on airline profits and threaten to cut short the rally. For this reason, Harned is pulling back on his target for GE stock and lowering it to $376.
I agree with the sentiment, but... I worry that Wall Street isn't worrying enough about this risk.
Consider that, based on GE's latest forecast of $9.1 billion in 2026 free cash flow, the stock currently trades at more than 36 times current-year FCF. Most analysts forecast profits to grow by less than 18% per year over the next five years -- which already looks expensive.
If Bernstein is right about high fuel prices hurting jet engine sales, GE's stock could be even more expensive than it looks. Caveat investor.
Rich Smith 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.