GE Aerospace's Aftermarket Revenue Deserves a Premium Multiple

It is worth remembering what GE was three years ago: a sprawling conglomerate with healthcare, energy, and aerospace divisions, each with different growth profiles and capital needs. Revenue sat at $76.6 billion in 2022 across all segments. Then came the spin-offs. GE HealthCare went public in January 2023. GE Vernova followed in early 2024. What remained was pure-play aerospace.

The transformation has been dramatic. Revenue normalised to $35.3 billion in 2023 as the non-aerospace businesses departed, then grew to $38.7 billion in 2024. On a trailing twelve-month basis, GE Aerospace now generates approximately $45.9 billion in revenue with operating margins approaching 20%, up from low single digits when the company was a conglomerate.

The parallel is instructive. When United Technologies spun off Otis and Carrier to create Raytheon Technologies (now RTX) in 2020, the initial market reaction undervalued the focused entity. RTX traded at a discount for nearly a year before the market fully priced in the benefits of operational focus. GE Aerospace is in that same early innings of multiple re-rating, but the aftermarket opportunity here is larger and more durable than anything in RTX's portfolio.

Here is the number that matters most: approximately 40,000 LEAP engines have been delivered to airlines worldwide since the programme entered service. Each of those engines will require multiple shop visits over a 25 to 30-year service life. The first major wave of LEAP shop visits is only now beginning, as the initial delivery cohort reaches its first scheduled overhaul interval.

This creates a revenue visibility profile that most industrial companies would envy. Each shop visit generates several million dollars in parts and labour revenue. The contracts are long-term, often structured as time-and-materials or fixed-rate-per-flight-hour agreements that lock in revenue streams for years. And the margins are significantly higher than OE sales, where competitive pricing with Pratt & Whitney (RTX) compresses profitability.

The GE9X programme, which powers the Boeing 777X, adds another layer. While the 777X programme has faced delays, those delays actually benefit GE's aftermarket timeline by extending the period before GE9X shop visits begin, allowing the company to focus near-term aftermarket resources on the more mature CF6 and GE90 fleets.

Historically, aerospace aftermarket revenue has proven remarkably resilient through economic cycles. During the 2008-2009 financial crisis, aftermarket revenue for major engine OEMs declined only 8-12%, compared to 30-40% drops in new equipment orders. During COVID, the recovery in aftermarket revenue lagged by roughly 12 months but came back stronger than pre-pandemic levels as airlines prioritised fleet maintenance over new purchases. The cyclical resilience of this revenue stream deserves a premium valuation.

At $325 billion market capitalisation and an enterprise value of $330 billion, GE Aerospace trades at 7.1x trailing revenue. That is expensive for an industrial, reasonable for a high-quality aerospace franchise, and cheap for a recurring-revenue aftermarket platform.

The sum-of-the-parts arithmetic works like this. Assign the OE business a traditional aerospace multiple of 12-14x earnings. That accounts for perhaps 30-35% of operating profit. Then assign the aftermarket business a premium multiple of 22-25x earnings, reflecting its recurring nature, high margins, and long-duration revenue visibility. The blended implied value lands between $380 and $420 per share.

The consensus is not there yet. At $354, the average target implies the market is still blending the two businesses into a single multiple. We expect the re-rating to accelerate over the next two to three quarters as management provides more granular aftermarket disclosure, a trend that started in the most recent earnings call.

One potential catalyst: if GE Aerospace follows the playbook of Rolls-Royce, which began breaking out aftermarket metrics more explicitly in 2023, the stock re-rated by over 200% in 18 months. GE is earlier in that disclosure trajectory, with a larger installed base and a broader engine portfolio.

Post-spin-off, GE Aerospace's balance sheet is clean. The company carries manageable debt levels relative to its cash flow generation. With trailing earnings per share of $8.05 and the business generating substantial free cash flow, capital return capacity is significant.

The dividend yield of 0.46% is modest, but that is by design. Management has prioritised share buybacks and reinvestment over dividend growth, a capital allocation choice that makes sense at this stage of the aftermarket ramp. Every dollar reinvested in the aftermarket supply chain or long-term service agreements generates higher returns than a passive dividend payout.

The stock has nearly doubled from its 52-week low of $175 to trade around $308. That move reflects the market's growing appreciation of the focused aerospace business model, but the multiple has not yet fully captured the aftermarket premium. The 50-day moving average at $312 and the 200-day at $295 both sit below the current price, confirming the uptrend.