Stock Analysis on Net
Stock Analysis on Net

GE Aerospace (NYSE:GE)

Present Value of Free Cash Flow to Equity (FCFE) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

GE Aerospace, free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.65%
01 FCFE0 4,113
1 FCFE1 4,174 = 4,113 × (1 + 1.49%) 3,578
2 FCFE2 4,376 = 4,174 × (1 + 4.84%) 3,216
3 FCFE3 4,735 = 4,376 × (1 + 8.19%) 2,983
4 FCFE4 5,281 = 4,735 × (1 + 11.54%) 2,852
5 FCFE5 6,068 = 5,281 × (1 + 14.90%) 2,809
5 Terminal value (TV5) 397,374 = 6,068 × (1 + 14.90%) ÷ (16.65% – 14.90%) 183,971
Intrinsic value of GE Aerospace common stock 199,409
 
Intrinsic value of GE Aerospace common stock (per share) $187.00
Current share price $252.57

Based on: 10-K (reporting date: 2024-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.85%
Expected rate of return on market portfolio2 E(RM) 14.71%
Systematic risk of GE Aerospace common stock βGE 1.20
 
Required rate of return on GE Aerospace common stock3 rGE 16.65%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rGE = RF + βGE [E(RM) – RF]
= 4.85% + 1.20 [14.71% – 4.85%]
= 16.65%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

GE Aerospace, PRAT model

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Average Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Selected Financial Data (US$ in millions)
Dividends and other transactions with shareholders 12,599 5,642 353 380 540
Preferred stock dividends — 295 289 237 474
Net earnings (loss) attributable to the Company 6,556 9,481 225 (6,520) 5,704
Sales of equipment and services 35,121 64,565 73,602 71,090 73,022
Total assets 123,140 163,045 187,788 198,874 253,452
Shareholders’ equity 19,342 27,378 36,366 40,310 35,552
Financial Ratios
Retention rate1 -0.92 0.39 — — 0.90
Profit margin2 18.67% 14.23% -0.09% -9.50% 7.16%
Asset turnover3 0.29 0.40 0.39 0.36 0.29
Financial leverage4 6.37 5.96 5.16 4.93 7.13
Averages
Retention rate 0.12
Profit margin 6.09%
Asset turnover 0.34
Financial leverage 5.91
 
FCFE growth rate (g)5 1.49%

Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).

2024 Calculations

1 Retention rate = (Net earnings (loss) attributable to the Company – Dividends and other transactions with shareholders – Preferred stock dividends) ÷ (Net earnings (loss) attributable to the Company – Preferred stock dividends)
= (6,556 – 12,599 – 0) ÷ (6,556 – 0)
= -0.92

2 Profit margin = 100 × (Net earnings (loss) attributable to the Company – Preferred stock dividends) ÷ Sales of equipment and services
= 100 × (6,556 – 0) ÷ 35,121
= 18.67%

3 Asset turnover = Sales of equipment and services ÷ Total assets
= 35,121 ÷ 123,140
= 0.29

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 123,140 ÷ 19,342
= 6.37

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.12 × 6.09% × 0.34 × 5.91
= 1.49%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (269,337 × 16.65% – 4,113) ÷ (269,337 + 4,113)
= 14.90%

where:
Equity market value0 = current market value of GE Aerospace common stock (US$ in millions)
FCFE0 = the last year GE Aerospace free cash flow to equity (US$ in millions)
r = required rate of return on GE Aerospace common stock

FCFE growth rate (g) forecast

GE Aerospace, H-model

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Year Value gt
1 g1 1.49%
2 g2 4.84%
3 g3 8.19%
4 g4 11.54%
5 and thereafter g5 14.90%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 1.49% + (14.90% – 1.49%) × (2 – 1) ÷ (5 – 1)
= 4.84%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 1.49% + (14.90% – 1.49%) × (3 – 1) ÷ (5 – 1)
= 8.19%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 1.49% + (14.90% – 1.49%) × (4 – 1) ÷ (5 – 1)
= 11.54%