UBS recently raised its price target on GE Aerospace (GE -0.51%) stock from $191 to $201 while maintaining a buy rating on the stock. According to thefly.com, the UBS analyst's argument is based on GE Aerospace's strong position in the airplane engine aftermarket. Bullishness comes from a combination of growing flight departures and GE's dominant position in commercial aircraft engines. Its joint venture, CFM International, has LEAP engines on both the Airbus A320 neo family and the Boeing 737 MAX, as well as CFM56 engines on the legacy Airbus A320 family and Boeing 737 airplanes.
The long-term case for GE Aerospace
Aircraft engines can be used for over 40 years, and tend to generate decades of lucrative aftermarket revenue as they come in for periodic "shop visits" and are maintained and overhauled. While aircraft engines are typically sold at a loss, the real money is made in the long-term stream of aftermarket revenue. As such, the newer LEAP engines have many years of earnings and cash flow ahead.
While shop visits for the legacy CFM56 engines are set to peak in 2025 they will still provide a long tail of aftermarket revenue ahead -- 45% of GE's fleet hadn't had its first shop visit at the end of 2023.
As such, the UBS analyst believes a combination of shop visits, pricing, and growth in flight departures, will drive earnings growth at GE Aerospace.
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Is it a stock to buy?
There's no disputing GE is a great aerospace company, and has excellent growth prospects. Still, valuation matters, and even if you take a medium-term view, GE trades at 26.5 times the Wall Street analyst's estimate for free cash flow in 2026. As such, the stock looks a little undervalued in relation to its long-term growth prospects, but it's not a stock likely to shoot the lights out in terms of returns from this level.
