GE and Honeywell Should Merge Aerospace Units, Says Analyst

GE’s power businesses, called GE Vernova, will spin off in early 2024, leaving GE Aerospace trading as a large maker of aircraft engines.

All those changes are creating some changes on Wall Street, too. More aerospace analysts are picking up coverage of the stock. Some industrial analysts, such as J.P. Morgan’s Stephen Tusa, are dropping coverage of the company altogether.

Melius analyst Robert Spingarn covers aerospace and wrote a research report about GE’s aerospace division on Wednesday.

“GE is arguably more relevant to investors than it has been in years,” wrote Spingarn. “Despite GE’s recent relative outperformance, we believe there are incremental buyers that are returning to the name and looking for large-cap exposure—besides

Boeing

(BA) and

Raytheon Technologies

(RTX)—to play the commercial aero upcycle.”

GE stock is up about 44% year to date. That’s the outperformance Spingarn is talking about. Meanwhile, GE HealthCare stock is up almost 40% year to date.

GE Aerospace will be one of the highest-quality aerospace franchise in the world, adds Spingarn. That will make it attractive to other players.

“Longer term, we also see the potential for a tie-up with

Honeywell
’s

(HON) Aerospace business,” wrote the analyst. “A combined GE/Honeywell Aero asset would be comparable in size and scope to Raytheon’s Pratt and Collins Aerospace businesses, although with significantly higher margins and a superior market position in commercial aero engines.”

Raytheon

is a combination of defense operations, Collins aerospace, and Pratt & Whitney’s aircraft engines.

Some analysts have suggested that GE should bulk up to create another aerospace and defense giant similar to Raytheon.

Honeywell’s aerospace division generated sales almost $12 billion in 2022, while GE Aerospace generated sales of about $26 billion, and Raytheon saw about $67 in sales.

GE said it doesn’t comment on speculation, regarding the

Honeywell

idea.

Spingarn rates GE stock at Buy and has a $120 price target, and pegs the value of GE Aerospace at $106 per GE share. The GE Aerospace valuation is almost $12 per share higher than where the stock is trading now, and doesn’t include any value for GE’s wind and gas power-generation businesses.

Overall, 67% of analysts covering GE rate the stock at Buy. The average Buy-rating ratio for stocks in the

S&P 500

is about 58%. The average analyst price target is about $100 a share.

GE stock is down about 0.2% in early Thursday trading. The S&P 500 and

Dow Jones Industrial Average

are down about 0.2% and 0.1%, respectively.

Write to Al Root at allen.root@dowjones.com