GE's Strong Q4 Results Highlight Growth but Valuation Concerns Persist

What happened

GE Aerospace reported robust Q4 2025 results, with adjusted EPS of $1.57 exceeding estimates by 10% and revenue surging 20% to $11.9 billion, driven by a 31% jump in services and record LEAP engine deliveries over 1,800 units. This performance underscores the company's operational strength and secular tailwinds in aerospace, aligning with the bullish narrative of market dominance and aftermarket growth. However, the DeepValue report warns that the stock is already priced for perfection, trading at a P/E of ~42x and EV/EBITDA of ~35x after an 87% rally over 12 months, significantly above a conservative DCF estimate of ~$46 per share. Legacy risks, including $24.7 billion in long-term care insurance liabilities and exposure to Boeing production issues, remain opaque and could undermine future cash flows. Despite the positive quarterly beat, the valuation leaves little margin of safety, reinforcing concerns about overvaluation in the face of these persistent headwinds.

Implication

Investors should interpret the Q4 beat as evidence of GE's robust aerospace franchise, yet the stock's premium multiples suggest much of this growth is already priced in, limiting upside potential. The high valuation, coupled with legacy insurance liabilities and reliance on OEM production ramps, increases vulnerability to any operational or macroeconomic shocks. For value-oriented investors, this reinforces the recommendation to avoid new purchases or trim existing positions until a more attractive entry point emerges. Closely monitoring execution against 2025 guidance and progress on de-risking legacy exposures will be critical for any future investment decision. Overall, the risk-reward profile remains unfavorable at current levels, aligning with a potential sell or hold strategy rather than adding exposure.

Thesis delta

The strong Q4 results support the bullish aspects of GE's growth story but do not alter the core valuation concerns highlighted in the DeepValue report. Therefore, the thesis remains unchanged: GE is a high-quality business with solid fundamentals, but its stock is overvalued, trading well above intrinsic value with significant legacy risks. Investors should maintain a cautious approach, awaiting either a price correction or clearer resolution of insurance and other exposures before considering a shift to a more positive stance.