One analyst says General Electric Co. continues to benefit from demand for travel, as shares rallied Thursday after it reported its latest earnings.
Shares of General Electric were trading around seven per cent higher late morning Thursday after reporting fourth quarter earnings that beat Wall Street’s expectations for profit and sales amid supply chain limitations, according to Bloomberg News. Adjusted earnings came in at US$1.32 per share in the quarter, higher than average analyst estimates of $1.04 compiled by Bloomberg. Adjusted revenue came in at $9.9 billion during the quarter.
“Travel… continues to be very robust on a global basis. GE is the largest supplier of engines into the global airline industry. And while we’ve had some execution challenges from some of the airframe OEMs (original equipment manufacturer) in delivering aircraft, there is a very strong demand out there and very healthy backlogs,” RBC Capital Markets Analyst Ken Herbert said in an interview with BNN Bloomberg Thursday.
He added that General Electric is also very exposed to the service market, a part of the industry that the company has “always done incredibly well in.”
“When you think about all of these engines flying, you think about the use of all these engines, there’s a phenomenal demand for spare parts to support these engines and for maintenance work to keep these engines flying,” Herbert said.
“So, their services business, for example, in 2025 should grow low double digits to mid teens. They raised their guidance today with their print on the services business and that’s really propelled by the spare parts sales and increasing visits of engines in the maintenance shops.”
The company also announced intentions to repurchase $7 billion worth of its own shares in 2025 and raise its dividend by 30 per cent.
Herbert noted that General Electric, known as GE Aerospace, previously split into three entities. He said the healthcare business spun off in 2022 and the energy business was also spun off from the aerospace business.
According to Bloomberg News, General Electric completed the spinoff of its energy business GE Vernova Inc. in April of last year.
“So, you’re basically left with a business today, GE Aerospace, that’s predominantly what we associate with GE. Predominantly aircraft engines, they do some avionics, they do some other pieces again predominantly for commercial markets, but then they do some government work as well,” Herbert said.
“But it is a pure play aerospace and defence company today and clearly benefiting from all the secular tailwinds we continue to see in that marketplace.”
Following the “fairly significant spin process,” he noted that restructuring “unlocked a lot of value” which drove the stock higher in 2023 and throughout 2024.
Herbert highlighted the recovery in domestic travel toward the end of the COVID-19 pandemic that was followed by a recovery in international travel benefited the company.
“You had some phenomenal growth rates in services markets, 40-50 per cent in 2022 and into 2023. So, we are seeing some normalization of that growth. I would say that we are still, a low double digit to mid-teens growth for GE services business. It’s still 400 to 500 basis points over what I would call a normal number,” he said.
