A Beat That Sold Off 7.4%: FY25 Cleared the High End and 2026 Topped Consensus, But the Multiple Finally Met the Deceleration — Maintaining Hold

Results vs. Consensus

Q4 2025 Scorecard (adjusted basis)

Full-Year 2025 vs. Guidance

Year-Over-Year Comparison

Quality of Beat

Revenue: Q4 revenue grew 20% with double-digit growth in both segments and orders up 74% (CES +76%, DPT +61%), an exceptional book that grew the backlog to ~$190B. Full-year revenue rose 21%, led by commercial services +26%. The quality is unchanged from prior quarters: services-led, supply-chain-enabled (priority-supplier material input rose over 40% for the year), and broad-based. There is nothing wrong with the top line; if anything, the order book accelerated.

Margins: Q4 consolidated operating margin fell 90bp to 19.2% (as guided) on the corporate and OE/9X-mix step-up, and full-year margin still expanded 70bp to 21.4%. The forward concern is the 2026 CES margin guide of roughly flat (~26.6%), where strong services drop-through is offset by doubling GE9X losses, a lower spare-engine ratio, OE growth, and R&D. After two years of margin expansion, a flat year is the inflection the market focused on, even though the segment-level services economics remain healthy.

EPS: FY25 adjusted EPS of $6.37 grew 38%, with ~75% ($1.32) from operating profit and the balance ($0.46) from a lower tax rate (down 3 points), a reduced share count (−26M), and lower interest. As in prior quarters, a meaningful slice is below-the-line, and 2026's guided ~15% EPS growth leans even more on operating profit (~85%) with only marginal help from tax (<17%) and an 18M-share reduction. The EPS engine is decelerating from the 38% pace to a still-healthy mid-teens, which is the crux of the re-rating.

Segment Performance

Commercial Engines & Services — A Banner Year, a Flat-Margin Guide

CES closed 2025 with orders up 35%, services revenue and engine output both up roughly 25%, and profit up 26% to $8.9B at a 26.6% margin (+40bp). Q4 itself was strong: orders +76% (equipment more than doubling), revenue +24% (services +31%, internal shop-visit revenue +30%, spare parts +25%), with engine deliveries +40% (LEAP +49%). Q4 segment margin fell 420bp to 24% as guided, on the lower spare-engine ratio, higher installed (OE) shipments including GE9X, and rising R&D. The 2026 guide is mid-teens revenue with profit of $9.6–$9.9B and margins roughly flat.

"CES delivered outstanding results, with orders growing 35% and services revenue and engine output both up roughly 25%. This supported profit growing 26% to $8.9 billion, with margins expanding 40 basis points to 26.6%." — Rahul Ghai, CFO

Assessment: The full-year result is excellent, but the 2026 flat-margin guide is the new reality the market is digesting. With LEAP a bigger share of the growth mix, GE9X losses doubling, and the spare-engine ratio normalizing down, the services drop-through is fully absorbed in 2026. This is the mix-driven margin pause we had flagged as a 2026 risk; it is not a deterioration in the underlying services economics, but it ends the multi-year margin-expansion narrative for a year.

Defense & Propulsion Technologies — Order Surge, Margin Build

DPT had a strong finish and year: Q4 orders +61% with a book-to-bill above 2, full-year orders +19% at a 1.5 book-to-bill, and backlog up ~$3B to $21B. Full-year revenue grew 11% with profit up 22% to $1.3B and margin +110bp to 12.3%. Q4 revenue grew 13% (Defense & Systems +2% on a tough delivery compare, offset by price/mix; Propulsion & Additive +33%), with margin down 70bp to 8.9% on the quarter's mix. The 2026 guide is mid-to-high-single-digit revenue and profit of $1.55–$1.65B.

"DPT also had a solid year, with orders up 19% and defense book-to-bill at 1.5, with backlog now at $21 billion, up nearly $3 billion." — Rahul Ghai, CFO

Assessment: A book-to-bill above 2 in Q4 and 1.5 for the year is a strong forward signal, and the +110bp full-year margin build shows the output-driven leverage continuing. DPT is becoming a more meaningful profit contributor, and the upcoming resegmentation (aeroderivatives moving in from CES) will enlarge it further. The strategic optionality (sixth-gen propulsion, international) remains forward-loaded, but the near-term order momentum is real.

Key Topics & Management Commentary

Overall Management Tone: Confident and unhurried, with the posture of a team that views 2026 as a planned step toward 2028 rather than a quarter to defend. Management leaned into the $10B operating-profit milestone arriving two years early and repeatedly framed the year ahead as "substantial" growth, without engaging the stock reaction. The notable shift from prior calls is the explicit hand-off from a margin-expansion story to a profit-dollar-growth story for 2026, an honest reframing that the market, fairly, found less exciting than the prior trajectory.

1. The Print Was Fine; the Guide Reset the Multiple

The central event was not the quarter but the collision between a ~50x multiple and a normalizing guide. FY25 beat the high end (EPS $6.37, FCF $7.7B), and 2026 EPS guidance of $7.10–$7.40 topped consensus. But the guide's composition, low-double-digit revenue, mid-teens services, flat CES margins, doubling GE9X losses, told investors the rate of acceleration is over. The stock had been priced for the 2025 cadence to continue; it will not.

"Looking to 2026, we're poised for another year of substantial revenue, EPS, and cash growth… We expect operating profit of $9.85 billion to $10.25 billion, up a billion dollars at the midpoint. This translates to EPS of $7.10 to $7.40, up nearly 15% at the midpoint." — Larry Culp, Chairman & CEO

Assessment: A ~15% EPS growth guide with >$8B of free cash flow is, in isolation, a very good year for an industrial. The problem was never the absolute level; it was the multiple. This is the textbook "priced for perfection meets normalization" reset, and it is healthy: it brings the valuation closer to what the franchise's forward growth rate can support.

2. 2025 in Review: The $10B Milestone, Two Years Early

2025 was, by any measure, an outstanding year: orders +32%, revenue +21%, operating profit +$1.8B (to $9.1B), free cash flow +$1.5B (to $7.7B), and adjusted EPS +38% to $6.37, exceeding the high end of guidance on every line. Most notably, GE will reach the $10B operating-profit level in 2026, a milestone the spin-era framework had penciled for 2028.

"We expect to deliver mid-teens revenue growth between '24 and '26 compounded and $10 billion of profit in '26, two years earlier than our outlook has been." — Larry Culp, Chairman & CEO

Assessment: Pulling the $10B milestone forward two years is a genuine achievement and a testament to the FLIGHT DECK operational gains. The double-edge: it raises the 2026 jumping-off point, which makes the path to the ~$11.5B 2028 target look like more modest incremental growth from here. The bar GE set for itself is now higher, and the 2026–2028 incrementals are where the next debate lives.

3. The 2026 Services Deceleration to Mid-Teens

Commercial services grew 26% in 2025; the 2026 guide is mid-teens, with internal shop-visit revenue and spare parts both mid-teens. Management was explicit that demand is not the constraint, throughput is, and that 2025's ~40% supplier-input bump will not repeat. Encouragingly, spare-parts delinquency exiting 2025 was up 50% year-over-year (a measure of unmet demand), and 85–90% of the parts needed early in 2026 are already in backlog.

"We're not particularly concerned about the demand environment. It's really all about our ability to move spare parts out to third parties to complete our own shop visits… perhaps not in line with the 40% bump we saw from our prior suppliers last year." — Larry Culp, Chairman & CEO

Assessment: The deceleration is a supply-driven moderation off a torrid 2025, not a demand crack. The 50% rise in delinquency is a notable tell: demand is outrunning GE's ability to serve it, which supports the durability of mid-teens-plus services growth and even leaves room to beat if throughput improves faster than planned. This is a measured guide that the company has a credible history of exceeding.

4. CES Margins Flat in 2026: The Mix Headwinds Bite

The single most scrutinized line was the flat 2026 CES margin guide (~26.6%). Management walked through the bridge: ~$3.5B of services revenue growth drops through at a healthy clip, but it is offset by LEAP being a larger share of the mix, rising OE shipments, a gradually lower spare-engine ratio, GE9X losses doubling, and higher R&D. The margin "ended up 70bp better than expected" in 2025, so the flat 2026 guide is off a higher base.

"Strong services growth, with $3.5 billion expected in services revenue growth in '26 that drops through at a healthy clip… OEM shipments are increasing, spare engine ratio gradually comes down… And then GE9X shipments and with R&D coming in as well. Those are the big drivers for CES margins here in 2026." — Rahul Ghai, CFO

Assessment: A flat margin year after two years of expansion is the legitimate disappointment, but the cause is mix and investment (more new engines, more LEAP, more R&D), not eroding services profitability. It is the predictable cost of ramping the next-generation OE base that will drive the aftermarket annuity for decades. We view it as a digestible pause rather than a structural concern, but it does remove a near-term catalyst.

5. GE9X Losses Double in 2026

GE9X losses landed at roughly a couple hundred million in 2025, in line with plan, and will double year-over-year in 2026 as 777X shipments ramp (with first Q1 shipments that did not occur in 2025). The cost-down curve is mapped (30% out by the 50th unit, another 30% by the 250th), with per-unit losses peaking about a year after entry into service before the program turns profitable in the 2030s.

"On GE9X, our losses ended… a couple of hundred million dollars of losses in 2025, and we landed right about there… For '26… our losses on the GE9X programs will double year over year. Our current guidance for '26 incorporates those losses." — Rahul Ghai, CFO

Assessment: This is the textbook new-wide-body economics we underwrote at initiation: lose on the hardware, earn it back over decades of aftermarket. The doubling was telegraphed in October, so it is no surprise, but it is a real ~$200M+ incremental EPS headwind that helps explain the flat margins. With 1,000+ GE9X in backlog at a 60%+ win rate, the long-term value is intact; 2026 is simply the peak-investment phase.

6. LEAP OE Turns Profitable; Record 1,800 Deliveries

A clear positive: LEAP original-equipment turns profitable in 2026, on plan. LEAP deliveries set a record in 2025 at over 1,800 units (+28%), the durability kit is now in all new deliveries and shop visits (~1,500 kits shipped), and internal LEAP shop-visit volume grew 27%. GE is dedicating ~$500M of its >$1B MRO investment to LEAP, roughly doubling internal LEAP MRO capacity, with external partners now ~15% of LEAP shop visits.

"To answer your question on the LEAP profitability, yes, we expect LEAP OE to be profitable in 2026 as per our prior plans." — Rahul Ghai, CFO

Assessment: LEAP crossing OE breakeven is a meaningful de-risking of the multi-year story: it removes a structural drag and confirms the program is maturing on schedule. The growing external channel and durability-kit penetration both feed the future aftermarket annuity. This is the bull pillar advancing exactly as planned, and it is what makes the 2026 margin pause a timing issue rather than a structural one.

7. CFM56 Longevity: Retirements Keep Surprising Low

The foundational CFM56 cash cow continues to age gracefully. Retirements ran ~1.6% in 2025 (in line with 2024 and far below the historical model), and management now expects ~2% in 2026, better than the prior 2–3% framework. CFM shop visits are expected in the 2,300–2,400 range through 2028, with no sharp post-2027 decline now anticipated. GE is strengthening third-party MRO access to OEM material (e.g., a new materials agreement supporting CFM56 fleets) to extend the franchise.

"Retirements in 2025 ended up at about 1.6%, in line with 2024… expecting slightly better at 2% compared to the 2% to 3% range given in July… that puts CFM shop visits in the 2,300 to 2,400 range between 2026 and 2028." — Rahul Ghai, CFO

Assessment: CFM56 longevity is the underappreciated offset to the LEAP/GE9X investment drag. Every year retirements run below model is incremental high-margin aftermarket, and the flattened shop-visit curve through 2028 supports the services line precisely when the OE mix is most dilutive. This is a quiet but important positive that cushions the 2026 margin pause.

8. Demand and Backlog: Dubai Air Show Adds 500+ Engine Wins

The order book remains the bedrock. The backlog grew to ~$190B (+~$20B), and the Dubai Air Show alone produced 500+ engine wins: Riyadh Air (120 LEAP-1A), flyDubai (60 GEnx), Pegasus (up to 300 LEAP-1B), Delta as a new GEnx customer (30 Boeing 787s), and India's HAL (113 F404 for the Tejas fighter). Management cited Delta and United's confident 2026 commentary as corroboration of the demand backdrop.

"We haven't seen anything here at the beginning of the year that gives us pause relative to the tailwinds… we come into the year with a $190 billion backlog." — Larry Culp, Chairman & CEO

Assessment: Demand visibility is not the question for GE and the order book continues to grow faster than revenue, extending the multi-decade aftermarket annuity with every win. The Delta GEnx capture (a new wide-body customer) is a notable competitive data point. The constraint remains throughput, which is why the 2026 guide is supply-shaped rather than demand-shaped.

9. Organizational Changes and the Russell Stokes Retirement

GE announced a reorganization: CES is expanded to include the Technology & Operations team (now led by Mohamed Ali), integrating product line, engineering, and supply chain; customer-facing teams (led by Jason Tonich) now report directly to the CEO. Separately, Russell Stokes, a senior leader and one of Culp's first GE partners, will retire in July 2026 after 29 years.

"Integrating our product line, engineering, and supply chain teams will improve our end-to-end engine life cycle management… I also want to thank Russell Stokes, who announced he'll retire from GE Aerospace in July." — Larry Culp, Chairman & CEO

Assessment: The reorganization is logical (it hardwires the supply-chain problem-solving that has driven the recovery deeper into the operating structure) and signals management's focus on LEAP throughput as the 2026 priority. The Stokes retirement is a notable loss of senior bench, though an orderly, telegraphed one. Neither changes the thesis, but both are worth tracking for execution continuity.

10. Cash and Capital Allocation: $20B+ Through 2026

2026 free cash flow is guided to $8.0–$8.4B (>100% conversion), bringing 2024–2026 cumulative cash generation to more than $20B. Capex stays at ~3% of sales, and the EPS guide embeds an 18M-share reduction from previously announced capital-allocation actions. Management reaffirmed the post-spin framework (reinvest, return cash with a bias, disciplined M&A).

"We expect to generate $8 billion to $8.4 billion of free cash flow with conversion remaining well above 100%… more than $20 billion of cash between '24 and '26 to reinvest in our future." — Larry Culp, Chairman & CEO

Assessment: The cash engine is the most reassuring part of the story and the floor under our Hold rather than Underperform. >100% conversion on a growing profit base funds the buyback and the reinvestment without stress. As the stock de-rates, the buyback becomes incrementally more value-accretive, which is a modest silver lining of the lower price.

Guidance & Outlook

The 2026 guide is, on its own terms, a strong year: ~15% EPS growth to a $7.25 midpoint, >$8B of free cash flow, and the $10B operating-profit milestone two years early. The deceleration is real but is the natural consequence of lapping a torrid 2025 and entering the peak-investment phase of the GE9X ramp. Roughly 85% of the EPS growth is operating-profit-driven, with only marginal help from a sub-17% tax rate and an 18M-share reduction, a higher-quality EPS mix than 2025's tax-and-buyback-assisted 38%.

The Q1 2026 setup is back-half-of-the-glass. Management guided Q1 to high-teens total revenue growth (both segments above their full-year rates), lapping a slow start in 2025 and the absence of a year-ago CMR charge, with profit up year-over-year primarily on services. But margins will be only flat-to-marginally-better than Q4's exit, GE9X shipments hit in Q1 (absent in Q1 2025), and free cash flow will be down year-over-year on payment timing. A strong revenue start with muted margin and cash optics is the early-2026 shape.

The 2028 framework is intact but the incrementals look smaller. Management reaffirmed the ~$11.5B operating-profit target for 2028 (with ~21% margins, a level GE essentially reached in 2025) and the multi-year double-digit revenue algorithm. With 2026 already at ~$10B of operating profit, the implied 2026–2028 growth is more modest than the 2024–2026 surge, which is the legitimate question the de-rating poses: how much further acceleration is left versus steady compounding. We model 2026 EPS at the $7.25 midpoint and 2028 EPS approaching ~$9.00–$9.50 on the operating-profit target plus buyback.

Analyst Q&A Highlights

The GE9X 2026 Loss Step-Up and First-Quarter Cadence

An analyst asked for the realized 2025 GE9X headwind, the incremental 2026 drag, and the Q1 CES earnings cadence. Management confirmed 2025 losses landed at the guided couple hundred million, that 2026 losses will double, and that Q1 will show high-teens revenue growth but only flat-to-marginally-better margins (plus year-over-year-lower free cash flow on payment timing).

Q: "Can you quantify what the GE9X headwind ended up being in 2025? What is the incremental profit headwind from GE9X in 2026? If you could comment on the quarterly earnings cadence at CES in '26 as well, that would be helpful."
— Scott Deuschle, Deutsche Bank

A: "On GE9X, our losses ended… a couple of hundred million dollars of losses in 2025, and we landed right about there… For '26… our losses on the GE9X programs will double year over year… because of the lower spare engine ratio and GE9X shipments, our total margins for the business will be kind of in line to slightly better or marginally better here versus where we ended 2025."
— Rahul Ghai, CFO

Assessment: This exchange crystallized the 2026 headwind set: doubling GE9X losses plus a lower spare-engine ratio drive the flat margins, and Q1 free cash flow is down year-over-year. None of it is new (it was telegraphed in October), but hearing it quantified on the same call as a decelerating revenue guide concentrated the market's attention on the margin pause. The candor is a credibility asset even as it was unwelcome.

Why CES 2026 Margins Are Guided Flat

An analyst pressed on the flat implied 2026 CES margin and asked what offsets the mix headwinds (equipment outpacing services, GE9X, lower spares ratio, LEAP growing faster than CFM). Management confirmed the math: ~$3.5B of services revenue growth drops through healthily, but is offset by OE/9X/spare-ratio/R&D, with the flat guide coming off a 2025 base that beat October's margin expectation by 70bp.

Q: "If you could walk through margins at the midpoint, it implies margins are flat… What are you seeing offset… the mix issues you're facing with equipment growth outpacing services, GE9X headwind, spares ratio, and LEAP growing double digits while CFM is flat?"
— Sheila Kahyaoglu, Jefferies

A: "The margin story at the CES level is exactly the way you said it. Strong services growth, with $3.5 billion expected in services revenue growth in '26 that drops through at a healthy clip despite LEAP being a bigger share of growth… OEM shipments are increasing, spare engine ratio gradually comes down… And then GE9X shipments and with R&D coming in as well… Feel good about trajectory."
— Rahul Ghai, CFO

Assessment: Management essentially validated the bear's margin math while arguing the underlying services profitability is healthy. The honest read: the flat margin is mix-and-investment-driven, not a sign of pricing or cost erosion. For the thesis, this confirms 2026 is a digestion year, the multiple should reflect a profit-dollar-growth story rather than a margin-expansion story, which is precisely the re-rating that occurred.

LEAP Original-Equipment Profitability and the Supply Chain

An analyst asked whether LEAP OE crosses breakeven/profitability in 2026 and what further supply-chain investment is needed to reach the ~2,500-unit 2028 output. Management confirmed LEAP OE turns profitable in 2026 as planned, and framed the supply chain as requiring continued (supplier-led) capital investment, with improved multi-year visibility now in hand.

Q: "I was wondering about the LEAP breakeven or LEAP profitability on the original equipment side. Are we crossing… profit or breakeven in '26 still?… What, if anything, is required from investment within the supply chain… on the OE side… to get to where manufacturers want the production rates?"
— Myles Walton, Wolfe Research

A: "We expect LEAP OE to be profitable in 2026 as per our prior plans… we're confident that as we move forward here through the rest of the decade, we'll be able to satisfy what the airlines need in the aftermarket and what the airframers are looking to do… I don't think we're gonna be up 40% every year, not that we have to."
— Larry Culp & Rahul Ghai

Assessment: LEAP OE profitability in 2026 is the most important positive of the call and a genuine multi-year de-risking, even if it was overshadowed by the margin and guidance discussion. It confirms the program is maturing on plan, which is what ultimately underwrites the aftermarket annuity. The market's focus on the near-term margin pause arguably under-weighted this structural milestone.

The Margin Trajectory Beyond 2026

An analyst looked past 2026 to ask where CES margins go as LEAP OE and aftermarket both become more profitable, against OE/aftermarket mix headwinds and more GE9X. Management pointed to the 2028 framework (~21% company margins, essentially reached in 2025), CFM56 longevity, improving LEAP service profitability, and no expected GE90 retirements as the levers toward an improved 2028 margin profile.

Q: "As we think about the headwinds accumulating from a mix perspective in CES… how should we think about margin trajectory there with LEAP OE becoming profitable, LEAP aftermarket continuing to become more profitable, but maybe OE aftermarket mix headwinds and more GE9X?… where do we think about that going directionally in the years beyond?"
— Seth Seifman, JPMorgan

A: "Back in July when we gave 2028 guidance, expected around 21% margins in '28. We got there last year, jumping off [a] higher point… LEAP service profitability continues to improve, external channel repairs to grow… Wide body program, especially GE90, no retirements expected. All that looks toward 2028, improved margin profile." — Rahul Ghai, CFO

Assessment: Management's answer reframes the story honestly: 2026 is a flat-margin pause, but the 2028 levers (LEAP aftermarket maturing, CFM56/GE90 longevity, external channel) point back to margin expansion thereafter. The bull case rests on the pause being temporary; the bear case is that the easy margin gains are behind and 2026's flat year is the new normal. We lean toward the bull on the structure, but the burden of proof now sits with 2027 actuals.

CFM56 Retirements Running Below Plan

An analyst probed why CFM56 retirements keep coming in below the modeled step-up and whether the 3–4% rate and 2027 shop-visit peak still hold. Management attributed the low retirements to demand (airlines keeping CFM56-powered aircraft flying), pegged 2026 at ~2% (better than the prior 2–3%), and flattened the shop-visit curve to 2,300–2,400 through 2028 with no sharp post-2030 decline.

Q: "You guys talked about CFM56 retirements trending lower than expected, 2%, despite successful LEAP deliveries. Expecting that to pick up to 3% or 4%, what's changed, still expecting shop visit peak in '27?"
— Gavin Parsons, UBS

A: "It's really more of a demand function, keeping CFM56 powered planes in flight as airlines need them. Retirements in 2025 ended up at about 1.6%… expecting slightly better at 2% compared to [the] 2% to 3% range given in July… ranges 2,300 to 2,400 through 2028… Expect no big decline come 2030."
— Larry Culp, Chairman & CEO

Assessment: The persistently low CFM56 retirements are a quiet, recurring upside that the market under-weights relative to the GE9X loss noise. Each year the foundational fleet flies longer is incremental high-margin aftermarket precisely when the OE mix is most dilutive. It is a meaningful structural cushion to the 2026 margin pause and a reason the services line should keep beating conservative guides.

Turnaround-Time Gains Across Legacy Platforms

An analyst asked how GE achieved ~10% turnaround-time improvement across LEAP, CFM56, and GE90 (mature engines) and how it shows up financially. Management attributed it to material availability plus efficient standard-work execution (batch-to-flow conversion), translating to higher shop-visit output and a productivity unlock as idle wait-for-parts time falls.

Q: "You talked about the improvement in turnaround times across the board, LEAP, CFM56, GE90, by about 10%… What levers enable you to do that? How should we see that improvement reflected in financials?"
— Douglas Harned, Bernstein

A: "It's really driven by two things: one, material availability, and two, efficient execution of our standard work on the shop floor… If a team on the floor has to stop a shop visit… that's obviously unproductive time. If they have everything they need from induction to certification, we will see and have seen early signs of real productivity bumps there as well."
— Larry Culp, Chairman & CEO

Assessment: The turnaround-time gains are the operational proof that FLIGHT DECK plus supply-chain stability compounds into both more output (top line) and lower cost (productivity). It is the mechanism behind the services beats, and its extension to mature CFM56/GE90 platforms shows the gains are not LEAP-specific. This is the durable operational engine that justifies a premium multiple; the debate, as ever, is the price.

What They're NOT Saying

1. An explicit reaction to the stock's run or the multiple: Management offered no commentary on valuation or the de-rating, focusing on operations. Fair, but it leaves the buyback's price-discipline question (raised in October) unanswered as the stock sits at ~41x.
2. The precise 2026 GE9X loss dollar figure: "Double year-over-year" off an undisclosed "couple hundred million" base implies ~$400–500M, but GE again declined the exact number, the largest single 2026 margin headwind and the hardest for the Street to model precisely.
3. Quantified LEAP services margins today: Despite confirming LEAP OE profitability, management still did not disclose where LEAP shop-visit (services) margins actually sit, the crux of the 2028 margin-expansion bridge.
4. The recast segment financials: The aeroderivative resegmentation (~$1.4B revenue, couple hundred million profit, CES→DPT) was announced but full recast figures were deferred to Q1 2026, leaving a gap in clean year-over-year segment-margin comparability until then.
5. Succession depth behind the Stokes retirement: Management thanked Russell Stokes warmly but said little about how his responsibilities are absorbed beyond the announced reorganization, a modest governance/continuity question left open.

Market Reaction

• Pre-print setup: GE closed at $318.50 on January 21, near its 52-week high of $327.54, up 69.1% over the trailing twelve months. The stock entered the print richly valued (~50x the prior FY EPS) and priced for the 2025 cadence to continue.
• Reaction-day move: Shares gapped down 4.0% to $305.87 at the open and deepened through the session to close at $295.00, down 7.4% (−$23.50), on 13.9M shares versus a 4.7M 30-day average (2.9x volume), the heaviest selling in our coverage window.
• Benchmark: The S&P 500 was +0.5% on the session, so the entire 7.4% decline was idiosyncratic.

The decline is not a verdict on the quarter; it is a re-rating of the multiple. GE beat Q4, beat the full year on every metric, and guided 2026 EPS above consensus. But the guide confirmed the deceleration we had been flagging: revenue to low-double-digit, services to mid-teens, CES margins flat, GE9X losses doubling. A stock at ~50x earnings needs continued acceleration to hold that multiple; the 2026 guide instead told investors that GE is now a high-quality ~15% grower. The market repriced accordingly, and the deepening from −4% pre-market to −7.4% at the close suggests the call detail (flat margins, Q1 free cash flow down, the GE9X step-up) hardened that read.

For us, the move is a partial vindication of the discipline that kept us at Hold through a 50x multiple. We wrote in October that "the multiple has more room to compress than expand as 2026 normalizes," and that is exactly what happened. The silver lining is that the reset improves the forward setup: at $295, GE trades ~41x the 2026 midpoint and ~32x the 2028 framework, meaningfully more reasonable than three months ago. We are not yet at our upgrade threshold, but the gap has narrowed.

Street Perspective

Debate: Was the Selloff a Buying Opportunity or the Start of a De-Rating?

Bull view: A 7.4% drop on a beat-and-above-consensus-guide is an overreaction. FY25 cleared the high end, 2026 brings ~15% EPS growth, >$8B of free cash flow, and the $10B operating-profit milestone two years early. The franchise is intact and the lower price is a gift; GE has a long record of exceeding conservative guides.

Bear view: The selloff is the first leg of a justified de-rating. At ~41x a decelerating-growth year with flat margins, GE is still expensive, and as the easy comps and supply-chain-unlock tailwinds fade, the multiple has further to compress. The market is right to pay less for a ~15% grower than it did for a ~38% one.

Our take: Closer to the bull on the business, the bear on the entry. The franchise quality and the conservative-guide track record argue the selloff is overdone on a one-year view; the still-premium multiple argues against chasing it here. That tension keeps us at Hold, but with a constructive lean we did not have at $307.

Debate: Is the Flat 2026 CES Margin a Pause or a Plateau?

Bull view: It is a pause. The flat margin is driven by deliberate investment (more LEAP/GE9X OE, more R&D) that builds the future aftermarket base, plus a normalizing spare-engine ratio. LEAP OE turns profitable in 2026, LEAP aftermarket and CFM56 longevity drive margin expansion again from 2027, toward the improved 2028 profile.

Bear view: It may be a plateau. After two years of expansion to 26.6%, the mix headwinds (LEAP a bigger share, OE outpacing services, GE9X scaling) could persist, and the 2028 "improved margin profile" depends on LEAP services economics GE still will not quantify. The burden of proof is on management.

Our take: A pause, with a show-me on 2027. The cause is investment and mix, not eroding profitability, and the structural levers (LEAP aftermarket, CFM56/GE90 longevity, external channel) are real. But after this guide, the market will not pay for margin expansion until 2027 actuals demonstrate it. We model a flat 2026 and a resumption thereafter.

Debate: How Much Acceleration Is Left Toward 2028?

Bull view: Plenty. The 2028 ~$11.5B operating-profit target is intact and management has a habit of raising it; the multi-year double-digit revenue algorithm (installed-base growth, work-scope intensification, LEAP aftermarket inflection) compounds for years, and the order book keeps growing faster than revenue.

Bear view: Less than the multiple implies. With 2026 already at ~$10B of operating profit, the 2026–2028 incremental to $11.5B is far more modest than the 2024–2026 surge, roughly mid-single-digit annual operating-profit growth, which does not support a ~40x multiple.

Our take: The bear has the better near-term point on the math. Pulling the $10B milestone forward is a triumph, but it compresses the visible runway to 2028 and is part of why the multiple reset. The longer-term annuity story is durable, but the 2026–2028 growth rate is the variable the stock now trades on, and it is decelerating.

Model Update & Valuation Framework

Valuation framework: At the $295.00 reaction-day close and the 2026 adjusted EPS guide midpoint of $7.25, GE trades at ~40.7x the current-year guide, down from ~50x into the print, the de-rating in action. On the ~$9.00–$9.50 2028 framework, the multiple is ~31–33x. The reset has moved the valuation from "priced for continued acceleration" toward "priced for high-quality compounding," but ~41x a ~15%-EPS-growth year with flat margins is still a premium that requires the conservative guide to be beaten.

12-month price-target framework (anchored to the $295.00 close):

Risk/reward: The base case is roughly flat over twelve months, with a bull/bear spread of about +10% / −18% that remains modestly skewed to the downside, the multiple can still compress further as 2026 plays out. That is a Hold, but a Hold whose downside is better protected than at $307 and whose upgrade path is now within sight. Our explicit upgrade triggers: a further reset toward the mid-$250s (~35x the guide), which would restore clear asymmetry; or evidence in the first half of 2026 that the "normalization" undershoots reality (services or margins beating the conservative guide). A move to Underperform would require a genuine demand crack or GE9X/LEAP losses materially worse than mapped, neither in evidence.

Thesis Scorecard Post-Earnings

Grading the standing thesis against Q4/FY25. The October "commitments to watch" largely tripped well on the fundamentals; the stock reaction reflects valuation, not a thesis break.

Overall: Thesis intact, with a 2026 digestion phase. The franchise over-delivered FY25 and pulled the $10B milestone forward two years; the bull pillars are confirmed (Bull #2 paused for a year on mix). The notable development is Bear #1 (valuation) partially resolving via the de-rating, exactly the dynamic our Hold anticipated, while Bear #2 (execution) is active but fully telegraphed.

Action: Maintain Hold, with a constructive lean. The discipline that kept us out of a 50x multiple is being rewarded; we want a bit more reset (or proof the guide is conservative) before upgrading.

Bottom Line: The Reset We Flagged Arrives

Rating decision: We maintain Hold on GE Aerospace. Q4 beat, full-year 2025 cleared the high end on every metric (EPS $6.37, FCF $7.7B), and the 2026 EPS guide topped consensus, yet the stock fell 7.4%. This is not a contradiction; it is the resolution of the central tension we have flagged since our July initiation. A stock at ~50x earnings was priced for the 2025 cadence to continue. The 2026 guide confirmed it will not: growth normalizes to ~15% EPS, services to mid-teens, CES margins to flat, with GE9X losses doubling. The multiple de-rated to match the forward growth rate.

We take a measure of vindication here. Maintaining Hold through a rising stock for two quarters was uncomfortable, and we said so candidly in October. But the rating is a forward risk/reward call, and we judged that a ~50x multiple left no room for the normalization we could see coming. It came. The discipline that cost us upside on the way up protected against the 7.4% air-pocket, and it has delivered us a materially better entry: ~41x the 2026 guide and ~32x the 2028 framework, versus ~50x a quarter ago.

Why not upgrade now? Because the reset is partial. ~41x a decelerating year with flat margins and doubling GE9X losses is more reasonable but not yet compelling, and our discipline says wait for either a deeper reset or evidence the conservative guide will be beaten. The franchise is unimpeachable, the cash generation is elite, and the long-term annuity is durable, which is why this is a Hold and emphatically not an Underperform. We are one good pullback, or one beat of the 2026 guide, from constructive.

What would move us to Outperform: a further reset toward the mid-$250s (~35x the 2026 guide), restoring clear asymmetry; or first-half 2026 evidence that services or margins are beating the conservative guide, proving the "normalization" undershoots reality. Given GE's track record of exceeding its own guides, the second path is plausible within a quarter or two.

What would move us to Underperform: a genuine demand crack (an air-traffic or wide-body production reset that finally pulls aftermarket toward ASK growth); GE9X or LEAP OE losses materially worse than the mapped curve; a supply-chain reversal that forces a guide cut; or continued multiple compression that turns the modest downside skew into a clear negative. None is in evidence today.

Signposts for Q1 2026 earnings (April 2026):