Skip to Content
Stock Analyst Update

We Cut Estimates, but Mostly Maintain Value; GE Cheap

The commercial aerospace environment faces rapid degradation relative to prior expectations.


The commercial aerospace environment faces rapid degradation relative to prior expectations. Consider that only in March, the International Air Transport Association forecast that revenue passenger kilometers (a widely used measure of demand) would drop by 38% year over year based on both the aftermath of the recession and subsequent government intervention. One month later, IATA dropped the forecast and currently forecast global demand will nearly halve, with the RPK impact fairly broad-based. In other words, no region is spared, even developing regions like the Asia-Pacific region, where large portions of RPK growth originates.

As a result, we revisited our estimates, and cut adjusted EPS estimates for 2020, 2021, and 2022 by approximately 29% (to 32 cents), 17% in 2021 (to 63 cents), and just 8% in 2022 (to 84 cents). We now forecast 2020 industrial free cash flow of $1.2 billion. We still retain our view that GE (GE) won’t come close to achieve its net debt to EBITDA target of 2.5 times as set by the rating agencies to prevent a credit downgrade. Nevertheless, while there were various puts and takes in our model, we only trim value by less than 2% to $10.80 per share. Sell-side bears now adopt a narrative that pushing out estimates merely reflects a refusal to capitulate, while some buysiders express the view that GE is a “falling knife.” We disagree with both characterizations.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Joshua Aguilar does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.