Air Traffic Is Stabilizing, According to GE Aerospace. As the Company Raises Its Forecast, Is It Time to Buy the Stock?

GE Aerospace (NYSE: GE) is a $320 billion industrial giant that makes and services jet engines. It is one of three companies that were spun out of the old General Electric as the company broke apart. Interestingly, the head of GE Aerospace is Larry Culp, the CEO who orchestrated General Electric's breakup. The earnings-guidance raise that GE Aerospace just announced suggests he made the right call about which company to stick with. But should you buy GE Aerospace?

What does GE Aerospace do?

There are actually two businesses within GE Aerospace. The foundation of the business is the jet engines it builds. That business feeds into the company's parts and services business, which effectively maintains the jet engines for airlines. This can be a powerful combination, noting that the aerospace giant's third-quarter 2025 adjusted earnings rose a huge 44% year over year, alongside an adjusted revenue advance of 26%.

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The commercial side of the business is the larger of the company's two divisions, with the other being focused on defense. Commercial services revenues advanced 28%. Internal shop visit revenue increased by 33%, with revenue from parts rising by approximately 25%. Equipment revenue grew 22%, with each new jet engine sold further growing the installed base that supports the company's annuity-like parts and services business.

That said, services and parts are tied to the actual use of the engines that are being maintained. Therefore, the amount of flight activity matters significantly to GE Aerospace's top and bottom lines. While the budget battle in Washington, D.C. has caused some turbulence in air travel, the company believes that air travel is likely to grow at a rate of 3% to 4% a year under normal conditions.

That has put a brighter spin on the company's outlook for 2026. According to CFO Rahul Ghai, "the number of engines that need a shop visit is projected to be up double digits in '26, just based on the number of cycles that they've already flown." But here's the interesting thing: The industrial giant has already bumped up its 2025 earnings guidance, taking the target from $5.60 to $5.80 per share all the way up to $6.00 to $6.20. That's a very big jump with just a single quarter to go before the end of the year. It seems likely that 2026 will see even more growth.

Where to from here for GE Aerospace

Clearly, GE CEO Larry Culp appears to have chosen to run what is turning out to be a very attractive growth business. Wall Street has recognized the company's success, with the stock up a heady 68% over the past 12 months, easily outdistancing the S&P 500 index's (SNPINDEX: ^GSPC) advance of 14%. That swift and dramatic price advance has some important implications for investors.

Given the breakup of GE into three parts, a process that was only completed in April 2024 with the spinoff of GE Vernova (NYSE: GEV), historical valuations aren't particularly meaningful for GE Aerospace. However, the absolute numbers for price-to-earnings (P/E) and price-to-book value (P/BV) are somewhat concerning, as they suggest that investors are already factoring in a significant amount of favorable news.

GE Aerospace's P/E ratio is currently 41.5x compared to roughly 29x for the S&P 500 index, which is trading near all-time highs. GE Aerospace's P/B ratio is 17.4x compared to 5.2x for the S&P 500 index. GE Aerospace is executing well, and it looks like the company has a bright future, but the valuation suggests that there's little room for error as the company moves forward.

Air traffic may stabilize, but GE Aerospace's stock may experience some turbulence

Benjamin Graham, the man who helped train Warren Buffett, pointed out that even a good company can be a bad investment if you pay too much for it. That could be a risk with GE Aerospace today, given its lofty valuation. Still, the current state of air travel suggests that the long-term future looks promising. However, Wall Street may have already factored a significant portion of that good news into the stock. If you buy it, be prepared to hold for the long term, as any shortfall could lead to a significant stock pullback in the short term. If you can't stomach that level of uncertainty, you should probably watch this high flyer from the tarmac.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends GE Aerospace and Ge Vernova. The Motley Fool has a disclosure policy.