GE Aerospace Raises Everything and Still Gets a Haircut

GE Aerospace Raises Everything and Still Gets a Haircut

A blowout Q3 and a higher 2026 guide cannot close the gap to the August peak. The market is no longer debating demand; it is debating the durability of the aftermarket and the multiple attached to it.

The beat was not the issue

GE Aerospace delivered the kind of quarter that usually moves a stock higher. Orders rose 49%, with commercial engines and services up 58%. Revenue grew 18%, operating profit 30%, margins expanded 220 basis points to 22.5%, EPS rose 36%, and free cash flow topped $2 billion. Management raised guidance across revenue, profit, EPS, and cash. “Third quarter orders were up 49%, led by commercial engines and services or CES, which was up 58%.” — Larry Culp, Chairman and Chief Executive Officer · 2026-10-20

The guide was not incremental. “We are now expecting revenue growth of 19%-20% from high teens previously.” — Rahul Ghai, Chief Financial Officer · 2026-10-20 Full-year operating profit is now $10.9 billion to $11 billion, EPS $8 to $8.10, and free cash flow $9.1 billion to $9.4 billion. In April, Larry Culp had said “if it were not for current events, we would be talking about an increase in the guide this morning” — H. Lawrence Culp, Chairman and CEO · 2026-04-21. Six months later, the increase is here.

Yet the shares slipped on the day and sit roughly 21% below the August 5 peak, with the 90-day tape down about 6%. That is the tension. The operating story is getting better; the stock is digesting a huge re-rating. 7.7x revenue and 46x free cash flow leave little room for a good-but-not-perfect quarter. The last filed quarter showed a 21.0% operating margin; Q3 expanded that to 22.5%, but the market is already looking at 2027.

The aftermarket is hot — but the mix is changing

Commercial services is the engine of profit. Revenue rose 17%, internal shop visit revenue 12%, spare parts more than 20%, and LEAP volume more than 40%. Widebody work scopes are getting heavier as GE90s move to second shop visits; CFM56 work scopes are stable. The CES orders book is strong enough that management entered Q4 with more than 95% of spare parts in backlog. Order growth has been running well ahead of revenue, which is a good problem — except it also means conversion timing is stretching. Spare parts delinquency increased sequentially. Demand is not the problem; supply is.

The crucial variable is CFM56 retirement. Retirements have been unusually low — management now expects roughly 1.5% to 2% this year, below the 2% to 3% it assumed earlier. That keeps more CFM56s flying and supports CFM56 shop visits. But management is explicitly assuming a step-up in 2027. “CFM56 retirements are trending lower than what we thought at the beginning of the year... now we are expecting somewhere between a point and a half to two points of CFM56 retirements.” — Rahul Ghai, Chief Financial Officer · 2026-10-20

This is where the story gets subtle. A retirement step-up sounds negative, but GE’s aftermarket revenue is driven by shop visits and work scope, not departures alone. Two-thirds of the CFM56 fleet has not seen a second shop visit, and used-material scarcity is forcing life-limited-part replacements. Management also sees LEAP shop visits growing about 25% annually through 2030, and the LEAP-1A installed base is expected to more than double between 2025 and 2030. The aftermarket is not one cycle; it is a stack of aging fleets with different clocks.

On the Q2 call, Larry Culp had said there was “no reason 2027 should diverge from that double-digit commercial services growth medium-term outlook” — Larry Culp, Chairman and CEO · 2026-07-16. Earlier this year, Rahul Ghai had also assumed retirements would rise to 3%-4%: “we have already assumed in our prior outlook that retirements increase to 3% to 4%” — Rahul Ghai, Chief Financial Officer · 2026-04-21. The new guide keeps the double-digit services story but adds a conservative assumption on retirements — and that is exactly the kind of fine print that matters when the multiple is this high.

LEAP and GE9X: the margin bridge is 2028, not 2027

The 2027 guide is for low double-digit services growth, but flat services margins. Rahul Ghai framed the math: “at the low double-digit level, that's about $3.5 billion-$4 billion of revenue growth, and expecting services margins to be flat.” — Rahul Ghai, Chief Financial Officer · 2026-10-20 LEAP services margins are still below the total, GE9X losses are still ramping, and OE is growing faster than services. The mid-seal certification for the GE9X is expected by the end of 2026; until then, shipments are delayed and costs are higher. Management expects another ~$300 million GE9X headwind in 2027.

This is why the stock’s reaction makes sense. The 2026 numbers are better, but 2027 is a transition year: services growth is intact, margins are flat, and the 2028 framework — where LEAP services margins approach the group and GE9X losses peak — is still the real prize. Management says it will exceed its 2028 cash outlook in 2026 and come close on profit. If true, the current multiple is less crazy than it looks. But the market wants proof, not another framework.

Oil, airlines, and the global backdrop

The macro is not helping. Brent around $111 and elevated jet fuel are pressuring airline profitability, a theme visible across the global tape in high oil prices and fuel-cost keywords. Larry Culp acknowledged the environment is dynamic and that airlines are trimming schedules, though Q3 departures were still up 1% and widebody demand was strong. The order book is the insulation: more than $170 billion of backlog, with most of the engines needed for the first half of 2027 already in the shop.

We may see some of that pressure down the road, but as we think about 2027 from a GE Aerospace perspective, we think that is primarily driven by the backlog and the cycles that have already been flown by the airlines.

That is a credible answer for 2027. It is less of an answer for 2028 if fuel stays high and airline capex slows. The global market is already voting on the AI/data-center power trade, not aerospace aftermarket. GE’s own tape has gone from a strong uptrend to a 17-week decline; the stock is no longer a momentum name.

The longer game

Management is still investing through the cycle. The CPP acquisition is about critical castings and next-gen airfoils; Larry Culp said the team is “about 3,000 endurance cycles along in the development process” — Larry Culp, Chairman and Chief Executive Officer · 2026-10-20. The company is advancing hybrid electric flight with Beta and moving defense programs like the F143 and XA102 forward. Rahul also flagged that “power gen is going to be a plus-up to our CFM56 revenue stream” — Rahul Ghai, Chief Financial Officer · 2026-10-20. None of this is in the 2027 guide. It is optionality, not a near-term catalyst.

What matters now is simpler: can GE convert a $170 billion backlog into low double-digit services growth without letting margins slip? The quarter says yes on demand, yes on execution, and maybe on margins. The stock says it needs more than maybe. For long-term investors, the setup is familiar: a high-quality compounder with a premium multiple, digesting a post-run drawdown while the operating story remains intact. The risk is not that the aftermarket disappears. It is that the market already paid for the aftermarket, and 2027 is a flat-margin year. If CFM56 retirements stay low and LEAP shop visits compound, the 2028 bridge can re-rate the stock again. If not, the multiple does the work.