Stock Analysis on Net
Stock Analysis on Net

GE Aerospace (NYSE:GE)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

GE Aerospace, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 15.32%
01 FCFF0 5,746
1 FCFF1 5,775 = 5,746 × (1 + 0.51%) 5,008
2 FCFF2 5,980 = 5,775 × (1 + 3.54%) 4,496
3 FCFF3 6,373 = 5,980 × (1 + 6.58%) 4,155
4 FCFF4 6,986 = 6,373 × (1 + 9.62%) 3,950
5 FCFF5 7,871 = 6,986 × (1 + 12.66%) 3,858
5 Terminal value (TV5) 332,640 = 7,871 × (1 + 12.66%) ÷ (15.32% – 12.66%) 163,073
Intrinsic value of GE Aerospace capital 184,540
Less: Preferred stock (fair value) 0
Less: Borrowings (fair value) 18,805
Intrinsic value of GE Aerospace common stock 165,735
 
Intrinsic value of GE Aerospace common stock (per share) $154.42
Current share price $208.74

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

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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.

Weighted Average Cost of Capital (WACC)

GE Aerospace, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 224,039 0.92 16.33%
Preferred stock (fair value) 0 0.00 0.00%
Borrowings (fair value) 18,805 0.08 3.36% = 4.06% × (1 – 17.30%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,073,290,505 × $208.74
= $224,038,660,013.70

   Borrowings (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (12.60% + 11.40% + 33.70% + 7.80% + 21.00%) ÷ 5
= 17.30%

WACC = 15.32%

FCFF Growth Rate (g)

FCFF 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)
Interest and other financial charges 986 1,118 1,607 1,876 3,273
Earnings (loss) from discontinued operations, net of taxes (91) 414 (644) (3,195) (126)
Net earnings (loss) attributable to the Company 6,556 9,481 225 (6,520) 5,704
 
Effective income tax rate (EITR)1 12.60% 11.40% 33.70% 7.80% 21.00%
 
Interest and other financial charges, after tax2 862 991 1,065 1,730 2,586
Add: Preferred stock dividends — 295 289 237 474
Add: Dividends and other transactions with shareholders 12,599 5,642 353 380 540
Interest expense (after tax) and dividends 13,461 6,928 1,707 2,347 3,600
 
EBIT(1 – EITR)3 7,509 10,058 1,934 (1,595) 8,416
 
Short-term borrowings 2,039 1,253 3,757 4,361 4,778
Long-term borrowings 17,234 19,711 28,593 30,824 70,288
Shareholders’ equity 19,342 27,378 36,366 40,310 35,552
Total capital 38,615 48,342 68,716 75,495 110,618
Financial Ratios
Retention rate (RR)4 -0.79 0.31 0.12 — 0.57
Return on invested capital (ROIC)5 19.45% 20.80% 2.82% -2.11% 7.61%
Averages
RR 0.05
ROIC 9.71%
 
FCFF growth rate (g)6 0.51%

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).

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2024 Calculations

2 Interest and other financial charges, after tax = Interest and other financial charges × (1 – EITR)
= 986 × (1 – 12.60%)
= 862

3 EBIT(1 – EITR) = Net earnings (loss) attributable to the Company – Earnings (loss) from discontinued operations, net of taxes + Interest and other financial charges, after tax
= 6,556 – -91 + 862
= 7,509

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [7,509 – 13,461] ÷ 7,509
= -0.79

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 7,509 ÷ 38,615
= 19.45%

6 g = RR × ROIC
= 0.05 × 9.71%
= 0.51%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (242,844 × 15.32% – 5,746) ÷ (242,844 + 5,746)
= 12.66%

where:

Total capital, fair value0 = current fair value of GE Aerospace debt and equity (US$ in millions)
FCFF0 = the last year GE Aerospace free cash flow to the firm (US$ in millions)
WACC = weighted average cost of GE Aerospace capital

FCFF growth rate (g) forecast

GE Aerospace, H-model

Microsoft Excel
Year Value gt
1 g1 0.51%
2 g2 3.54%
3 g3 6.58%
4 g4 9.62%
5 and thereafter g5 12.66%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 0.51% + (12.66% – 0.51%) × (2 – 1) ÷ (5 – 1)
= 3.54%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 0.51% + (12.66% – 0.51%) × (3 – 1) ÷ (5 – 1)
= 6.58%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 0.51% + (12.66% – 0.51%) × (4 – 1) ÷ (5 – 1)
= 9.62%