Honeywell Aerospace vs. GE Aerospace: Which Pure-Play Aerospace Stock Is the Better Buy Now That Both Stand Alone?

In the wake of the recent split of General Electric, two pure-play aerospace stocks have emerged: GE Aerospace and Honeywell Aerospace. Each company presents its own set of advantages and challenges for potential investors. While both businesses are relatively new on a standalone basis, GE Aerospace appears to be in a stronger position at present.

One key differentiator between the two companies lies in their valuation metrics. GE Aerospace boasts a price-to-sales ratio of 6.3x and a price-to-earnings ratio of 36x. Although these metrics appear relatively high when compared to their five-year averages of 2.2x and 28.5x, respectively, one must consider that these averages incorporate periods when GE Aerospace was still part of the larger General Electric conglomerate.

Conversely, Honeywell Aerospace has a price-to-sales ratio of 2.7x and a price-to-earnings ratio of 44x. However, given that Honeywell Aerospace is still in the process of establishing itself as a standalone entity, a more favorable valuation might be expected in the future.

Turning to the third-quarter financial performance of each company, GE Aerospace exhibited more robust growth. Its revenues increased by 16% year-over-year, with commercial business sales rising by 21% and defense business sales climbing by 7%. A significant portion of GE Aerospace's commercial business revolves around services, which make up 50% of its defense business and 70% of overall sales.

This creates a stable foundation of recurring income. Honeywell Aerospace, on the other hand, experienced a modest 2% increase in sales. Its commercial original equipment sales boosted by 7%, commercial aftermarket sales grew by 2%, and its defense business saw a 1% sales improvement.

Given GE Aerospace's more solid performance and larger market capitalization of around $320 billion compared to Honeywell Aerospace's $50 billion, it appears to be the more attractive choice for moderate and more conservative investors. However, Honeywell Aerospace could still be a worthwhile investment, as it is still undergoing a transition period and may offer a better value in the long run. As always, potential investors should carefully consider their risk tolerance and investment goals before making any decisions.