What caught my attention is GE Aerospace (GE -0. 03%) stock trades up more than 60% year to date, and it's understandable if investors are starting to think it might be overvalued.
Moreover, However, the company's second-quarter earnings just revealed something that strengthens the investment thesis for long-term investors.
Additionally, Imving long-run fit potential Aerospace companies are typically not judged on near-term earnings, but rather on their potential for a long-term of recurring revenue from higher-margin services.
In this case, it's GE's commercial aerospace engines.
The typical model in the industry is that engines are initially sold at a loss, which reflects the long-term development costs as well as duction costs, known as the negative engine margin (an important development), in today's financial world.
Meanwhile, However, as they can be run for over 40 years, they generate a lucrative of aftermarket revenue when they periodically require "shop visits" for maintenance, repair, and overhaul (MRO).
Market analysis shows analysis suggests that leads to an odd dynamic where GE Aerospace wants to der more engines for long-term fitability, but it will hurt earnings in the near term.
The evidence shows key is to der new engines, and particularly the LEAP engine (used on the Boeing 737 MAX and the Airbus A320neo family), given current economic conditions.
As you can see below, after a challenging 2024, GE is on track for 15% to 20% growth in deries in 2025 -- the chart shows the midpoint of that range. Data source: GE Aerospace (this bears monitoring).
Chart by author.
Digging into the details, the second quarter marked a dramatic imvement, as LEAP engine deries increased by 38% year over year to 410 units, ing a 13% decline in the first quarter to 319 units.
This increase puts GE back on track for its full-year guidance. Furthermore, Where next for GE Aerospace.
Nevertheless, While the engine dery growth will hold back near-term fits, it will drive long-term earnings and cash flow (something worth watching), considering recent developments.
At the same time, This's a good sign that GE is overcoming the supply chain issues that negatively impacted deries in 2024.