CHONGQING, CHINA – JANUARY 19: In this photo illustration, a smartphone displays the logo of General Electric Company (NYSE: GE), an American industrial company focused on aerospace, in front of a screen showing the company’s latest stock market chart on January 19, 2026 in Chongqing, China. (Photo illustration by Cheng Xin/Getty Images)
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GE Aerospace (NYSE: GE) reported strong Q4 2025 results with adjusted EPS of $1.57, exceeding estimates by 10%, while the full-year adjusted EPS totaled $6.37. Revenue increased by 20% in the quarter to $11.9 billion, propelled by a 31% growth in services and record LEAP engine deliveries surpassing 1,800 units.
However, does this solid operational performance warrant further growth from current levels? We believe there is limited upside potential from the current levels, considering the high valuations.
What is causing the valuation concern? The stock has significantly risen over the past twelve months (+47%), pushing the valuation to high levels. With full-year 2025 adjusted EPS at $6.38 and shares trading around $295, GE Aerospace is attaining a P/E ratio of 46x. This signifies a substantial premium to historical averages and raises concerns about how much more the market is prepared to pay for future growth.
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How Did The Business Perform Operationally?
The quarter demonstrated strong momentum across key metrics. Total orders soared by 74% to $27.0 billion, indicating robust demand in both commercial and defense segments. Operating profit rose by 14% to $2.3 billion, although operating margins contracted by 90 basis points to 19.2% as the company invested in increasing production. Free cash flow totaled $1.8 billion, representing a 15% increase, showcasing solid cash-generating capabilities. Refer to GE Aerospace’s financials for further details.
Segment Performance Highlights
- Commercial Engines & Services: The CES segment displayed the strongest performance with orders growing by 76%. Services revenue soared by 31%, with internal shop visit revenue up by 30% and spare parts climbing more than 25%. Equipment revenue increased by 7% even though unit volume jumped by 40%, as a lower spare engine ratio offset volume gains. This segment continues to benefit from the expansion of the installed base and higher utilization rates.
- Defense & Propulsion Technologies: DPT exhibited steady growth with orders up by 61% and revenue increasing by 13%. Operating profit grew by 5% to $0.3 billion as the defense sector saw a 2% increase while Propulsion & Additive Technologies accelerated by 33%. The diversification across defense platforms offers stability even as commercial aerospace leads the growth narrative.
What Does 2026 Guidance Indicate?
Management has issued 2026 guidance projecting adjusted EPS in the range of $7.10-$7.40, implying approximately 14% growth at the midpoint. While this signifies ongoing expansion, the slowdown from the 38% EPS growth in 2025 raises questions about whether the elevated valuation can be maintained. Free cash flow is expected to remain strong, bolstering shareholder returns and balance sheet flexibility.
Valuation Crossroads
Can the stock justify its current multiple?
This is where the investment debate becomes complicated. At 46.2x trailing earnings, GE Aerospace trades significantly above typical peers in the aerospace and defense sector. Even considering the midpoint of 2026 guidance ($7.25 per share), the forward P/E remains high at approximately 40.7x. The current trailing P/E ratio exceeds the three-year average of 40.2x. The market seems to be factoring in flawless execution and sustained double-digit growth for the foreseeable future. We currently estimate GE stock valuation to be $315 per share, indicating limited upside potential. We will soon revise our model to incorporate the latest quarterly earnings and guidance.
What Are The Downside Risks?
The counterargument revolves around limited upside given the starting valuation. If economic growth slows or airline capacity additions decrease, service demand could soften from elevated levels. Supply chain disruptions continue to be a persistent risk that could impede production increases and impact margins. Perhaps most critically, any disappointment relative to high expectations could lead to multiple compression, given the level of optimism already reflected in the current share price.
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The Bottom Line
While GE Aerospace’s operational execution remains robust and the long-term aerospace recovery narrative is still valid, the risk-reward profile appears unbalanced at current levels. The 46.2x P/E ratio provides little margin for error, and investors may find it more advantageous to wait for a more appealing entry point rather than pursuing momentum following the significant rally. The company’s fundamentals are solid, but valuations are important, and this one seems overextended.
