GE Aviation stock could see turbulence as an evening star forms

By:
on May 17, 2024
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  • The GE Aviation share price has surged to a record high.
  • The company’s revenue and profits are rising as the civil aviation business booms.
  • The stock has formed an evening star pattern on the weekly chart.

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The GE Aviation (NYSE: GE) stock price has done well this year, making it one of the best-performers in the S&P 500 index. It has jumped by over 55%, giving it a market cap of over $178 billion. It is also up by over 500% from its lowest point in 2020.

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Strong performance but valuation concerns

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The GE Aviation share price has soared to a record high, helped by the strong performance of the civil aviation industry and the complete overhaul of the company. 

Aircraft orders have surged after the Covid-19 pandemic, led by the narrow-body sub-segment. Most companies like EasyJet, Ryanair, and United Airlines have made big orders from firms like Boeing and Airbus. Its backlog has jumped to over $150 billion.

Additionally, most airlines have recovered completely from the Covid-19 pandemic, with most of them reporting elevated over 90% load factor. This is important since GE Aviation makes over 70% of its revenue from aftersale service. 

The stock has also jumped because of the company’s transition from a conglomerate to a simple aircraft-focused company. In most cases, simpler organizations  attract a higher valuation metric compared to conglomerates.

GE Aviation is also doing well. The most recent financial results revealed that total orders rose by over 34% to $11 billion while adjusted revenue rose by 15% to $8.1 billion. It had an operating profit of $1.5 billion and free cash flow of $1.5 billion.

The management expects that GE Aerospace’s operating profit will be between $6.2 billion and $6.6 billion. Free cash flow will be about $5 billion. 

There are concerns that the company is now fairly overvalued. With a market cap of over $178 billion, the company has a forward price-to-earnings ratio of 26x, which is higher than the forward S&P 500 multiple of 20.4. 

However, this figure is not all that bad since the company is having double-digit growth while the S&P 500 index is growing by 5.4%. A discounted Free Cash Flow (DCF) model found that its fair value is $205.6, higher than the current $161.

GE Aviation stock price forecast

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GE Aviation

GE chart by TradingView

The weekly chart shows that the GE share price has done well in the past few years. That rebound happened after the company formed an inverse head and shoulders pattern between 2019 and 2023. 

It has rebounded above the crucial resistance level at $142.72, its highest swing in July 2026. The stock has remained above all moving averages, which is a positive sign. Oscillators like the Relative Strength Index (RSI) and the Stochastic Oscillator have all pointed upwards.

The shares have formed an evening star candlestick pattern, which is a popular bearish sign. If this happens, it could drop and retest the crucial support at $150 followed by $142.72. 

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