GE Aerospace stock drops despite strong earnings and guidance: what next?

GE Aerospace stock fell more than 4% in premarket trading even after the company reported strong quarterly earnings. The shares dropped to $344.70, leaving them about 10% below their highest level of the year. So, is this post-earnings sell-off likely to deepen, or does it present a buying opportunity ahead of a rebound?

GE Aerospace stock dropped as earnings jumped

GE, the biggest company in the aircraft engine industry, is doing well despite the US-Iran war that led to disruptions in the civil aviation industry. Its financial results showed that its revenue and profits rose, with the management expecting further growth in the near term. 

The company’s orders rose by 17% in the second quarter and by nearly 50% in the year’s first half. Its revenue soared by 24% in this quarter to $12.6 billion, with its operating profit hitting $2.7 billion. Most importantly, its backlog jumped to over $210 billion. Some of the top orders during the quarter came from Copa Airlines and Turkish Aerospace.

By segment, its commercial engines and services (CES) sales jumped by 27% to $9.7 billion, while its defense & propulsion technologies jumped to $3.4 billion. In a statement, the CEO said:

“GE Aerospace delivered a strong second quarter with revenue and EPS both up more than 20% driven by robust commercial services growth. FLIGHT DECK continues to fuel significant operational improvements across services and equipment with record internal shop visit output.”

Most importantly, the company now expects that its business will continue booming this year. It expects that its operating profit will jump to between $10.5 billion and $10.75 billion, while its earnings per share (EPS) will move to between $7.65 and $7.85. These are all big numbers considering that it made an operating profit of $9.1 billion and an EPS of $6.37. 

Good company at the wrong price

A key concern that GE stock faces is that it is a highly valued company. Its forward price-to-earnings ratio stands at 47.65, a high number considering the industrial sector median stands at 21. 

In contrast, fast-growing companies like Nvidia and Micron have a lower figure. Nvidia has a forward P/E ratio of 23, while Micron has 15. As such, while GE Aerospace is a good company with a substantial market share, its valuation has become substantially high. 

GE stock technical analysis

GE Aerospace stock chart | Source: TradingView

The daily chart shows that the GE share price bottomed at $269.47 in April and then surged to a high of $382. It has then pulled back, a performance that accelerated in the premarket session.

The stock has moved to the crucial support, which coincided with the highest point in February. This price was the upper side of the cup-and-handle pattern, a common continuation sign. 

GE has remained above the 50-day and 100-day moving averages. Therefore, despite its high valuation, there is a likelihood that the stock will resume the uptrend. If this happens, the next level to watch will be the Ultimate Resistance of the Murrey Math Lines tool at $375.