Will GE Aerospace hit $200 and beyond? 1 Wall Street analyst thinks so.

Bernstein began to cover GE Aerospace (GE 0.19%)and its analyst imposed a $201 price target on the stock, along with an outperform rating. For context, the target represents a 20% upside to the stock’s current price.

Bernstein’s price target

Based on the Wall Street consensus for $4.25 in earnings per share in 2024, hitting the price target would put GE Aerospace on a price-to-earnings multiple of just over 47 times its full-year earnings. That might seem excessive to many investors, but the company deserves a relatively rich earnings multiple for two reasons.

First, it reflects long-term earnings and cash flow potential from aftermarket services and parts for its aircraft engines. GE Aerospace’s commercial aircraft engines can be used for over 40 years, and most installed engines will generate decades of profitable earnings and cash flow.

Second, its profit margins are under pressure in the near term as it continues to ramp up production of jet engines, which are typically sold at a loss. This means GE Aerospace’s profit margins will likely be subdued for the next few years and then improve significantly as the revenue mix shifts to the aftermarket as the engines are used.

As analyst Bernstein notes, GE Aerospace will thrive on aftermarket demand because it has a higher percentage of revenue exposure than other aerospace companies.

Rating matters

To add numbers to the discussion, the company generated operating profit of $5.6 billion in 2023 and the current market cap is $181 billion. Management’s ongoing estimate for operating profit in 2024 is $6.5 billion to $6.8 billion. Meanwhile, March investor day guidance calls for $7.1 billion to $7.5 billion in 2025, rising to $10 billion in 2028.

Image source: Getty Images.

In other words, profits should grow at a double-digit rate through 2028. That’s attractive if you’re bullish on the commercial aerospace industry over the long term. Still, it could take some time for the stock to reach Bernstein’s target given its current valuation, so investors should be patient.