GE Aerospace Q4 earnings top estimates, shares slide on slowing growth outlook

GE Aerospace beat Q4 estimates with adjusted EPS of $1.57 vs. $1.43 expected and GAAP revenue of $12.7B (up 18%), while adjusted revenue was $11.9B (up 20%). Full-year 2025 results showed GAAP revenue $45.9B (+18%), adjusted revenue $42.3B (+21%), adjusted EPS $6.37 (+38%), free cash flow $7.7B (+24%) and orders of $66.2B (+32%) with a backlog near $190B. Management guided 2026 to adjusted EPS $7.10–$7.40, free cash flow $8.0–$8.4B and operating profit $9.85–$10.25B, but said revenue growth will slow to the low double-digit range, which, along with signs of decelerating commercial engine and services growth, pressured the stock (down ~5% to $303).

Analysis

Market structure: GE’s beat but slower 2026 guide shifts incremental winners to aftermarket and services (GE) and tier‑1 engine suppliers while pressuring high‑growth multiple expansion across aerospace stocks. Backlog of ~$190B and $66.2B orders (up 32%) signal multi‑year demand for engines/services, but deceleration from 21% to “low double‑digit” revenue growth implies normalization of delivery cadence and margin progression over 2026–2027. Cross‑asset: tighter credit profile (FCF $8B target) supports spread compression in IG aerospace credits; near‑term equity IV for GE will stay elevated and jet fuel/Brent sensitivity remains a demand swing factor for airlines and OEM cadence.

Risk assessment: Tail risks include a major engine incident/airworthiness directive, sharp airline capex pullback in a recession scenario, or supply‑chain labor constraints that reverse FCF conversion; each could shave >20% off 12‑month EPS upside. Near term (days–weeks) expect headline volatility around guidance re‑ratings; short term (3–6 months) execution on backlog conversion is key; long term (12–36 months) profitability hinges on sustained services penetration and defense awards. Hidden dependencies: >100% FCF conversion depends on working capital drawdown and timing of spares shipments — one quarter reversal could materially hit cash.

Trade implications: Direct: accumulate GE (NYSE:GE) on weakness below $300 with a 12‑month target of $360 (~18% upside) and 15% stop; consider buy‑call spreads to lever upside (Dec‑2026 300/360). Options: sell cash‑secured puts at $280 (Apr/Sept) to collect premium and set an effective buy price with defined risk. Pair: long GE vs short BA (Boeing) to capture engine/service secular strength vs OEM execution risk; overweight A&D ETFs (ITA/XAR) vs underweight airline names (AAL) for 3–12 month horizon.

Key Decisions for Investors

• Establish a 2–3% long position in GE (NYSE:GE) on pullbacks below $300, target $360 within 12 months (≈18% upside), set a hard stop‑loss at 15% ($≈257) to limit event risk.
• Sell cash‑secured GE $280 puts (Apr/Sept 2026 expiries) size to add 1–2% portfolio exposure if assigned; only execute if net premium yields >3% for the contract period to justify assignment risk.
• Buy a directional call spread: GE Dec‑2026 300/360 call debit spread to gain leveraged upside with defined cost — size to replace up to half of the outright long position if wanting capped risk.
• Implement a relative‑value pair: go long GE (1% portfolio) and short BA (0.5%) for 6–12 months to capture services resilience vs OEM delivery/execution risk; trim if relative performance narrows to <150bp differential or widens >400bp in GE's favor.