Aviation safety has recently shifted focus on aerospace stocks, with scrutiny primarily on Boeing (NYSE:BA) following several high-profile incidents. The most dramatic was the loss of an emergency door in flight.
However, experts attribute this particular assembly issue to Spirit AeroSystems (NYSE:SPR), as that plant undertakes related work.
Boeing has witnessed some positive news by agreeing on a deal to resolve outstanding civil litigation relating to 737 Max crashes from a few years ago. This deal renews public interest in aviation safety as experts predict that this summer will see record levels of travel and revenues.
Aerospace stocks are typically divided between defense and commercial operations, with some companies spanning both areas. Increased flight demand and safety concerns could lead many airlines to strengthen maintenance and security protocols. This may support companies that supply ancillary services to the commercial aviation industry.
These would be MRO, or maintenance, repair and overhaul, providers, who are anticipated to benefit from a second trend in the sector: higher travel demand also implies fewer airliners will be retired.
This suggests requirements for enhanced maintenance and overhauls, such as adding more fuel-efficient engines to counter expected increased fuel costs.
GE Aerospace (GE)
GE Aerospace (NYSE:GE), owned by General Electric, designs and produces commercial and defense aircraft engines and all of their components. It also offers after-market maintenance support.
With rising concerns about carbon emissions and fuel costs, the company stands out for having some of the most fuel-efficient engines on the market.
Despite its size as an industrial corporation, GE reported solid growth last quarter. Organic orders increased 14% over the prior year and EPS rose by 122% within the same period. The results have the company on track to achieve its target of $10 billion in operating income by 2028.
In 2024, GE’s share price has risen 59% but has traded mostly sideways since its first quarter earnings release. This implies that GE stock has increased much slower than earnings growth, making it a good candidate as one of the aerospace stocks to consider buying.
The average analyst price target is $186.29 per share, implying a potential upside of about 17%. Notably, analysts have slightly increased their earnings forecasts for the coming quarter. This may indicate that GE could outperform expectations when it reports its second-quarter results next week.
TransDigm (TDG)
TransDigm (NYSE:TDG) is a holding company that acquires aerospace suppliers and maintenance firms like a private equity firm. Rather than focus on a single service, TransDigm owns various businesses across commercial and defense aviation.
These businesses supply airframe components and spare parts. As the average age of the global aviation fleet is at its oldest at 13.3 years and retirements are projected to slow, spare parts demand should remain strong.
The TDG stock price has risen approximately 40% over the last year but pulled back slightly starting in early June. This decline could present an opportunity to buy the dip. Analyst price targets average $1459.74 per share, implying also a potential 17% upside from current levels.
Due to the recent price decline, the company’s price-to-earnings ratio has fallen to 49.4x. This is well below the industry average of 57.3x, labeling TDG as one of the undervalued aerospace stocks to consider buying.
Analyst forecasts for TransDigm EPS this quarter have also trended upward. EPS stood at $8.17 three months ago and at $8.48 last month. The current estimate is $8.55 per share.
Boeing (BA)
Boeing might be the odd one out as one of the aerospace stocks to consider buying. Its construction record and the recent vote by Seattle plant workers to authorize a potential strike have brought significant headlines.
However, these issues are well known in the markets and likely reflected in BA stock price.
Despite challenges, Boeing saw its order backlog grow over the last year to $529 billion, implying ongoing customer support for Boeing aircraft. Notably, the acquisition of Spirit AeroSystems aims to address quality control while resolving the 737 Max litigation, which could finally allow the company to move forward.
Most analysts recommend buying Boeing, as its share price is down over 29% year-to-date. On average, they assign a $219.16 price target, suggesting a potential 18% upside. Despite negative growth estimates for this quarter, they point to an over 100% increase next quarter.
However, Boeing may also represent higher risk and reward potential, as investors currently appear cautious toward the aerospace manufacturer. Analysts do not expect this quarter to be profitable.
On the date of publication, Stavros Tousios did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.