StandardAero (NYSE:SARO) 2026 Conference March 17, 2026 01:00 PM ET Company ParticipantsDan Satterfield - CFOSeth Seifman - Head of U.S. Aerospace and Defense Equity ResearchSeth SeifmanGood afternoon, everyone, and welcome back to the Aerospace and Defense Track here at the 2026 JPMorgan Industrials Conference. I'm Seth Seifman, the A&D analyst here, and we are very grateful to have StandardAero with us, and we have the company's CFO, Dan Satterfield. Dan, thanks very much for coming.Dan SatterfieldThanks, ...

Core Insights - GE Aerospace shares have surged 73.3% over the past year, significantly outperforming the S&P 500 and industry peers [1][2][19] - The stock is currently trading near its 52-week high of $348.48, closing at $339.81, indicating strong market momentum [1][4] - GE Aerospace has secured major contracts, including a record deal with Qatar Airways for over 400 engines, enhancing its market position [10][11] Company Performance - The company has outperformed competitors like RTX Corporation and L3Harris Technologies, which gained 62.8% and 72.5% respectively [2] - GE Aerospace's stock is above its 50-day and 200-day moving averages, reflecting positive market sentiment and stability [4][19] - Earnings estimates for 2026 are projected at $7.44 per share, indicating a year-over-year growth of 16.8% [15] Market Dynamics - Strong demand in both commercial and defense sectors is driving growth, with significant engine wins at the Dubai Airshow [9][12] - The company has received a $5 billion deal from the U.S. Air Force, highlighting its strong position in defense contracts [11] - Rising defense budgets and increased air travel demand are expected to benefit GE Aerospace in the future [12][19] Investment and Shareholder Returns - GE plans to invest over $1 billion in MRO facilities globally over the next five years to enhance growth [13] - In 2025, the company paid $1.45 billion in dividends, a 44.1% increase year-over-year, and repurchased shares worth $7.4 billion [14] - The dividend was raised by 30.6% to 36 cents per share in February 2026, demonstrating commitment to shareholder returns [14] Valuation Considerations - GE Aerospace is trading at a forward P/E ratio of 44.43X, higher than the industry average of 33.65X, which may pose risks if market sentiment changes [16][17] - Compared to peers, GE's valuation is elevated, with RTX Corp. and L3Harris Technologies trading at lower P/E ratios [17] Analyst Sentiment - Despite the high valuation, positive analyst sentiment and growth prospects suggest it may be a favorable time for potential investors [20]

Core Insights - The defense sector is experiencing a multi-year capital expenditure (capex) wave driven by contract assurance from the Department of Defense, benefiting both major primes and smaller suppliers [1] Group 1: Major Defense Companies - Lockheed Martin (LMT) has a record backlog of $194 billion, with F-35 deliveries expected to increase from 110 in 2024 to 191 in 2025, and a projected revenue of $77.5 to $80 billion for 2026 [1] - RTX (RTX) holds a $268 billion backlog, with $107 billion in defense, and reported a 30% growth in military revenues in Q4 2025 [1] - Boeing (BA) has a total backlog of $682 billion and is ramping up production of the 737, although it is still facing cash burn and negative operating margins [1] Group 2: Smaller Suppliers - Albany International (AIN) is highlighted as a small aerospace and defense supplier, with a 45% year-over-year revenue increase in Q4 2025, reaching $143.7 million [1] - Albany International's Engineered Composites division produces structural components for major defense systems, including the F-35 and missile applications [1] - The company is also developing ceramic matrix composites for hypersonic missile applications, with announcements expected in spring 2026 [1]

Financial Performance - Adjusted EBITDA for Q4 2025 was $210 million, an increase from $186 million year-over-year, with full-year adjusted EBITDA totaling $808 million, reflecting a 17% year-over-year growth [1][3] - Net income for Q4 2025 was $79 million, a significant improvement from a net loss of $14 million in Q4 2024, attributed to higher operating earnings and lower interest costs [1][4] - Full-year net income reached $277 million, up $266 million year-over-year, with adjusted net income at $398 million and adjusted EPS at $1.19 [1][7] Revenue Growth - Q4 2025 revenue was reported at $1.6 billion, up 13.5% from $1.4 billion in the prior-year quarter, with full-year revenue increasing by 15.8% compared to 2024, primarily driven by organic growth [2][4] - The company achieved a revenue growth of 16% year-over-year, supported by robust demand and high-quality execution [3][4] Free Cash Flow - Free cash flow rebounded to $209 million for 2025, including $308 million in Q4, compared to a cash use of $45 million in 2024, indicating a 75% free cash flow conversion on net income [8][9] - Management expects free cash flow to grow again in 2026, targeting an 80%-100% conversion rate over time [9][20] 2026 Guidance - For 2026, the company provided revenue guidance of $6.275 billion to $6.425 billion, with adjusted EBITDA expected between $870 million and $905 million, implying about 14% margins [5][18] - Adjusted EPS guidance for 2026 is set at $1.35 to $1.45, compared to $1.19 in 2025, with free cash flow expected to be between $270 million and $300 million [19][20] Segment Performance - Engine Services revenue grew to $5.35 billion in 2025, up 15.3% year-over-year, with adjusted EBITDA increasing by 15.7% [15] - Component Repair Services (CRS) revenue increased by 19.6% to $709 million, with adjusted EBITDA growing by 31% and margins improving by 250 basis points year-over-year [16] Operational Developments - The company ramped up its LEAP engine program significantly, inducting 60 LEAP engines in 2025 compared to 10 in 2024, with second-half LEAP revenues being 2.5 times that of the first half [11][12] - Management is restructuring contracts to eliminate $300 million to $400 million of low-margin pass-through revenue, which is expected to enhance reported margins [14][16] Challenges and Headwinds - Near-term headwinds include a fire at the Phoenix facility and a U.S. government shutdown, which are expected to impact component repair services and military-related activities [4][17]

Core Thesis - GE Aerospace is positioned as a leading pure-play aviation propulsion company following the breakup of General Electric in 2024, retaining its dominant jet engine franchise [3][7] Company Overview - GE Aerospace's share price was $315.41 as of February 13th, with trailing and forward P/E ratios of 39.18 and 42.55 respectively [1] - The company powers approximately 75% of the active commercial fleet with an installed base of around 78,000 engines, generating about 70% of its revenue from services [3][4] Financial Performance - Recent results show a 26% year-over-year revenue increase in Q3, operating margins exceeding 20%, and free cash flow projected above $7 billion annually [5] - The company has a backlog of $175 billion and maintains a consistent book-to-bill ratio above 1, indicating strong long-term visibility [5] Market Position and Growth Potential - The global fleet expansion, rising utilization, MRO growth, and defense modernization are expected to drive a credible long-term revenue CAGR of 7-9% with durable margin expansion [5] - The scale advantages from flagship programs like GE90 and GEnx, along with the CFM International joint venture, create a significant data advantage and customer lock-in [4] Valuation Considerations - At a share price of $315, GE Aerospace trades at approximately 50 times earnings and over 40 times forward free cash flow, reflecting high expectations for sustained peak momentum [6] - The stock is considered a compelling long-term investment below $280 per share, where valuation better compensates for normalization risk while maintaining exposure to a high-quality industrial compounder [6][7]

Core Insights - Safran is capitalizing on the aerospace recovery with record engine deliveries and a strong aftermarket, leading to a positive outlook for 2025 and 2026 [2][3] Financial Performance - The company reported a 15% increase in 2025 revenue to €31.3 billion (approximately $37 billion) and a 26% rise in recurring operating income to €5.2 billion [3] - Operating margin improved to 16.6%, an increase of 1.5 percentage points from the previous year, with free cash flow reaching €3.9 billion [3] Growth Drivers - Civil propulsion was the main growth driver, with LEAP engine deliveries reaching a record 1,802 units, a 28% year-over-year increase, particularly strong in the fourth quarter [4] - Services revenue for civil engines increased by 30% in US dollar terms, driven by high utilization of the global fleet and ongoing demand for maintenance and spare parts [4] Future Guidance - For 2026, Safran expects recurring operating income between €6.1 billion and €6.2 billion, with revenue growth projected in the low to mid-teens [5] - Free cash flow is anticipated to be between €4.4 billion and €4.6 billion, with LEAP deliveries forecasted to rise by around 15% [5] - The company has also raised its 2028 recurring operating income target to €7.0 billion to €7.5 billion, up from a previous target of €6.0 billion to €6.5 billion [5] Market Dynamics - The aerospace industry is experiencing robust demand, with airlines operating older aircraft longer due to delivery bottlenecks at Airbus and Boeing, which increases maintenance and repair activities [6] - The LEAP program is maturing, with higher volumes and improved supply chain stability reducing production friction, leading to increased installed base and cash flow from long-term service agreements [7] Profitability Factors - The aftermarket is becoming a significant source of profitability, with service revenue being less volatile and carrying higher margins compared to original equipment sales [8] - Increased shop visits due to constrained new aircraft supply provide engine makers with a unique combination of volume and pricing power [8]

Core Viewpoint - Safran's CEO Olivier Andries indicated that while CFM will strive to meet any additional engine requests from Airbus, the primary focus remains on fulfilling existing supply commitments amid ongoing supply chain challenges with Pratt & Whitney [1]. Group 1: Company Commitments - CFM, co-owned by Safran and GE Aerospace, is committed to a 15% increase in total LEAP engine deliveries for the year, but this forecast does not account for an increase in market share [1]. - Safran has agreed on engine volumes with Airbus for 2026, emphasizing that any additional production will align with their market share commitments [1]. Group 2: Industry Context - Airbus is currently facing a stand-off with Pratt & Whitney regarding engine supplies, which jeopardizes its production goals and has led to a search for additional engines from CFM [1]. - Airbus aims to ramp up A320neo-family production to 75 units per month by 2027, up from approximately 60 currently, but has faced delays due to supply chain issues, particularly with Pratt & Whitney engines [1]. - Pratt & Whitney expressed confidence in reaching an agreement with Airbus, while Airbus has not commented ahead of its earnings announcement scheduled for February 19 [1].

Core Insights - GE Aerospace has seen a significant stock increase of 51.5% over the past year, outperforming the S&P 500's growth of 16.9% and the aerospace industry's growth of 28.2% [1][8] - The stock closed at $316.33, nearing its 52-week high of $332.79, and is above both its 50-day and 200-day moving averages, indicating strong market confidence [4][8] Financial Performance - In 2025, GE's Commercial Engines & Services revenues and orders increased by 24% and 35% year-over-year, respectively [10] - The Defense & Propulsion Technologies business saw revenues rise by 11% and orders grow by 19% in 2025 [11] - Earnings estimates for 2026 are projected at $7.45 per share, reflecting a 17% year-over-year growth, while 2027 estimates are at $8.55 per share, indicating a 14.8% growth [17] Market Position and Contracts - GE Aerospace secured over 500 engine wins at the Dubai Airshow in 2025, including significant contracts with flydubai and Riyadh Air [9][10] - A notable $5 billion contract was awarded by the U.S. Air Force for F110 engines, parts, and support services, along with an IDIQ contract from the U.S. Army [11] Growth Outlook - For 2026, GE Aerospace anticipates adjusted revenues to grow in the low-double-digit range, with mid-teens growth in commercial engines and services [12] - The company plans to invest over $1 billion in MRO facilities globally over the next five years, including a $500 million investment in a dedicated LEAP test cell [13] Shareholder Returns - In 2025, GE paid $1.45 billion in dividends, a 44.1% increase year-over-year, and repurchased shares worth $7.4 billion [14] Valuation Concerns - GE Aerospace is trading at a forward P/E ratio of 41.77X, higher than the industry average of 32.55X, which may pose risks if market sentiment declines [15] - Compared to peers like General Dynamics and Textron, which trade at lower P/E ratios of 21.27X and 14.45X, respectively, GE's valuation is considered elevated [15]

Group 1 - FTAI Aviation and Hexcel are complementary stocks in the aviation sector, with Hexcel being a better long-term investment currently [1] - FTAI focuses on the aerospace aftermarket, while Hexcel specializes in advanced composite materials for the original equipment market [2] - Owning both stocks allows investors to benefit from strong aircraft production (Hexcel) and increased usage of older planes during manufacturing delays (FTAI) [2] Group 2 - GE Aerospace has performed well due to its relevance in both the OEM and aftermarket, similar to the dual roles of FTAI and Hexcel [3] - FTAI competes with GE Aerospace in engine maintenance and servicing after long-term service agreements expire, while also supporting GE's engine sales [4][5] - FTAI's recent stock surge is attributed to the launch of FTAI Power, which converts CFM56 engines into power turbines for data centers, capitalizing on AI demand [6] Group 3 - Hexcel's advanced composite materials are increasingly important for future aircraft, providing strength and weight advantages over traditional materials [9] - The use of composite materials helps airlines improve productivity and meet emissions goals, indicating long-term growth potential for Hexcel [9]

Core Viewpoint - GE Aerospace reported strong Q4 2025 results with adjusted EPS of $1.57, exceeding estimates by 10%, and full-year adjusted EPS totaled $6.37, indicating robust operational performance [2][4] Financial Performance - Revenue increased by 20% in Q4 to $11.9 billion, driven by a 31% growth in services and record LEAP engine deliveries surpassing 1,800 units [2][6] - Total orders soared by 74% to $27.0 billion, reflecting strong demand in both commercial and defense segments [6] - Operating profit rose by 14% to $2.3 billion, although operating margins contracted by 90 basis points to 19.2% due to increased production investments [6] - Free cash flow totaled $1.8 billion, representing a 15% increase, showcasing solid cash-generating capabilities [6] Segment Performance - The Commercial Engines & Services segment displayed the strongest performance with orders growing by 76% and services revenue soaring by 31% [11] - The Defense & Propulsion Technologies segment exhibited steady growth with orders up by 61% and revenue increasing by 13% [11] 2026 Guidance - Management has issued 2026 guidance projecting adjusted EPS in the range of $7.10-$7.40, implying approximately 14% growth at the midpoint [8] - Free cash flow is expected to remain strong, bolstering shareholder returns and balance sheet flexibility [8] Valuation Concerns - The stock has risen significantly over the past twelve months (+47%), leading to a high P/E ratio of 46x, which is a substantial premium to historical averages [4][9] - The current trailing P/E ratio exceeds the three-year average of 40.2x, indicating that the market is factoring in flawless execution and sustained double-digit growth [9] Investment Outlook - The risk-reward profile appears unbalanced at current levels, with the 46.2x P/E ratio providing little margin for error [13] - Investors may find it more advantageous to wait for a more appealing entry point rather than pursuing momentum following the significant rally [13]