GE Aerospace Stock Nears Death Cross Amid Valuation Concerns and Strong Earnings Outlook

GE Aerospace (NYSE:GE) stock has slumped 20% from its high for the year, erasing billions of dollars in market value. It was trading at $313, well below its August peak of $388, and an impending death cross suggests more downside ahead.

GE Aerospace Stock Has Dived Ahead of Earnings

The ongoing GE stock decline has coincided with that of its competitors. RTX Corporation (NYSE:RTX), which owns Pratt & Whitney, has dropped by 14% from its peak this year. In the UK, Rolls-Royce Holdings has fallen by 15%, while in France, Safran has dropped by 13%.

GE Aerospace will be in the spotlight this week as it releases its earnings report, which is expected to show that its growth continued. Benzinga data shows that analysts expect the upcoming results to show that its revenue rose 14% to $12.88 billion in the third quarter. 

Its guidance for the year is that its revenue will hit $50.3 billion, up by 19% from the $42.2 billion it made last year. This growth is being driven by the rising product and service orders from the biggest airlines in the world. 

The most recent results showed that GE Aerospace received orders worth $16.5 billion in the second quarter, up by 17% YoY. This increase brought its backlog to $210 billion, and management expects the growth to continue. 

The challenge, however, is that GE Aerospace is highly overvalued. It has a forward price-to-earnings ratio of 40, much higher than the manufacturing sector median of 19. These multiples are higher than other fast-growing companies like Nvidia (NASDAQ:NVDA), Micron (NASDAQ:MU), and Lumentum (NASDAQ:LITE).

Wall Street analysts expect GE Aerospace’s stock to have more upside. Wells Fargo sees it rising to $380, while Jefferies predicts a jump to $435. Deutsche Bank has a target of $450, and Goldman Sachs expects the stock to reach $410.

GE Stock May Drop Further in the Near Term

Technicals suggest that the GE stock price may drop further in the near future. It formed a double-top pattern with a neckline of $335, its lowest level on July 16 this year.

The stock has dropped to the 61.8% Fibonacci Retracement level. Worse, GE is about to form a death cross pattern as the spread between the 50-day and 200-day moving averages has narrowed to just 5 points. A death cross would point to more downside over time. 

If a bearish breakout occurs, the first target to watch is $296, the lowest level on October 8. A drop below that level would point to more downside toward the 78.6% retracement at $294. On the flip side, a move above the resistance at $328, the 50% retracement level, would invalidate the bearish outlook.

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