Shares of two prominent aircraft engine companies had contrasting outcomes in their recent quarterly earnings reports. However, despite their divergent results, both stocks continue to find favor on Wall Street.
RTX Stock Takes a Hit: 10% Drop
Following the earnings report, shares of RTX (formerly Raytheon Technologies) tumbled by 10%, closing at $87.10. While RTX’s earnings per share of $1.29 exceeded Wall Street’s expectations of around $1.18, problems with their geared turbofan (GTF) engine significantly impacted the company’s market value. Analyst Rob Stallard from Vertical Research Partners humorously summed up RTX’s quarter as “GTF OMG,” alluding to the challenges faced by their GTF engine. Specifically, issues with the engine’s powdered metal components resulted in unexpected inspection costs and led to a market value decline of approximately $14 billion. It is worth noting, however, that this problem does not affect current new engine production, and measures have been taken to address the powder issue on new parts since 2021.
Stallard maintains a positive outlook on RTX and recommends a “Buy” rating for the stock, with a target price of $106.
GE Stock Soars: 6.3% Increase
In stark contrast, General Electric (GE) witnessed a 6.3% rise in its stock following the quarterly earnings report, closing at $117.16. GE’s success can be attributed to its leading position in the market with its LEAP engines, which compete directly with RTX’s GTF engines. Melius analyst Robert Spingarn playfully stated that “GE is LEAPing ahead of the competition” in his report on GE’s earnings.
Overall Market Performance
While both RTX and GE experienced contrasting outcomes, the broader market saw modest gains. The S&P 500 and Dow Jones Industrial Average added 0.3% and 0.1% respectively, indicating a positive trend for the aerospace industry overall.
Spingarn Impressed by Aerospace Performance
Spingarn, a notable analyst, was thoroughly impressed by the performance of the aerospace segment. Despite the increasing deliveries of new engines, which do not directly generate profits, there was a noticeable improvement in profit margins. It’s worth noting that engine makers earn their profits from engine servicing rather than initial sales.
LEAP Dominates Narrowbody Segment
An interesting observation made by Spingarn is that in the crucial narrowbody segment, the LEAP engine boasts an already dominant market share and maintains a remarkable win rate of over 70% against its competitor, the GTF engine produced by RTX. This information further solidifies Spingarn’s positive outlook on the industry. Consequently, he rates GE shares as a “Buy” and has set a price target of $122 for the stock.
Strong Earnings Performance
Both GE and RTX reported impressive bottom-line earnings. GE exceeded expectations with earnings per share (EPS) of 68 cents, while analysts forecasted 46 cents. This result has further added to the positive sentiment surrounding GE’s performance.
Analysts React
The views held by Stallard and Spingarn are shared by other industry analysts. As a result, several of them have raised their price targets for GE stock after reviewing the latest results. The average upward adjustment was approximately $10 per share, resulting in an average target price of around $122. Conversely, a number of analysts have lowered their price targets for RTX stock. For instance, Morgan Stanley analyst Kristine Liwag downgraded the shares to “Hold” from “Buy” and decreased her price target from $110 to $95. Currently, the average analyst target price for RTX shares stands at approximately $105.
High Ratings for GE and RTX
Both GE and RTX enjoy popularity on Wall Street. A significant percentage of analysts, 65% to be precise, rate their respective stocks as a “Buy.” This rating is the same for both companies. To put this into perspective, the average “Buy-rating” ratio for stocks within the S&P 500 is approximately 55%.
Future Expectations
Looking ahead, Wall Street seems optimistic about RTX stock and its potential for improvement. On the other hand, analysts believe that GE will continue to maintain its strong performance.
Stock Performance Comparison
Year-to-date, GE stock has experienced significant growth, with an increase of 79%. Over the past 12 months, the stock has soared by 120%. Conversely, RTX stock has had a decline of 14% so far this year and has decreased by 8% over the past 12 months. As a result, RTX stock is currently trading at 15.1 times the estimated 2024 earnings, while GE is trading at 26.6 times.
