1 Ohio-Based Company That's a No-Brainer Buy for Long-Term Investors

GE Aerospace's (NYSE: GE) latest big news helped confirm its status as an excellent stock for long-term investors to park cash in. Its current valuation probably means this isn't a stock that will shoot the lights out in terms of performance.

However, it does offer a relatively safe way to invest in a core holding, and it has an exciting long-term growth kicker to come. Here's why GE Aerospace is an excellent option for buy-and-hold investors.

GE Aerospace has an almost unassailable business moat

Manufacturing commercial and defense aerospace engines is a business with about as long a cycle as you can think of in the industrial world. It requires multibillion-dollar investments and expertise even to contemplate it, and that's why there are only three major players in the field. One is GE Aerospace, which manufactures engines both itself and through its joint venture with Safran Aircraft Engines, CFM International. The others are RTX's Pratt & Whitney, and Rolls-Royce.

Rolls-Royce provides engines for Airbus widebodies -- the A330neo, the A380, and the A350 -- and is an option on the Boeing 787 widebody. Pratt & Whitney engines power the A320neo family, the A220, and Embraer E-Jets.

However, GE Aerospace is by far the leading player in the industry, with GE or CFM engines powering the A320neo family (in competition with Pratt & Whitney). It produces the sole engine option on the Boeing 737 Max and the forthcoming Boeing widebody 777X, as well as the 787 Dreamliner.

In addition -- and this is a critical point for the investment case -- CFM International made the CFM56 engine that powers the legacy Airbus 320 family of aircraft and the legacy Boeing 737s.

Long-term recurring revenue

Given that commercial aerospace engines can be utilized by airlines for 40 years, they provide long-term recurring revenue from highly lucrative parts and services. This revenue is generated mainly by "shop visits," when engines come in for large-scale maintenance, repair, and overhaul (MRO). An engine run that long might require three or even four shop visits.

Image source: Getty Images.

To put this into perspective, the older CFM56 engine first entered service in 1982, with the newer LEAP engine entering service in 2016. However, according to GE Aerospace CFO Rahul Ghai on an earnings call in July: "Currently, approximately 40% of the CFM56 fleet has yet to undergo a first shop visit. And a majority of the operators anticipate keeping these engines in service well into [the] 2030s."

Ghai's comment highlights that the older CFM56 engine will continue to generate substantial revenue for many years to come. Meanwhile, the company is still building services revenue from the newer LEAP engine, which was first put into service nearly a decade ago.

In fact, management expects that LEAP services revenue won't be comparable to CFM56 services revenue until 2028 -- 12 years after the LEAP came into service.

The good news, as you can see in the chart below, is that the company is back on track in ramping up LEAP deliveries. (On the recent earnings call, management upgraded its estimate for LEAP delivery growth to 20% in 2025, from a prior estimate of 15% to 20%.)

Data source: GE Aerospace presentations. Chart by author.

The long-term growth kicker

In a sense, GE Aerospace investors are buying into the existing services revenue from older engines, such as the CFM56, and the long-term recurring revenue from the LEAP engine, the first of which entered service in 2016, and which could still have 30 years of operation remaining.

However, the very long-term growth kicker could come from CFM's Revolutionary Innovation for Sustainable Engines (RISE) program.

I wrote a primer article about RISE in August. Since then, it has become abundantly clear that management believes the open fan technology CFM is developing is the future of commercial aerospace engines. During an earnings call in July, GE Aerospace CEO Larry Culp stated that the company is "all in" on open fan technology.

Image source: CFM International.

Fast-forward to early October, when the company published a "Product and Technology Update" that made its position clear on the benefits of open fan and next-generation ducted engine technology. Management noted that "Open Fan architecture offers inherent opportunities for durability and efficiency unmatched by ducted architecture." It included a chart implying that RISE open fan technology could have a bypass ratio (BPR) of more than 60, compared to next-generation ducted engines' BPR of approximately 15. In case you're wondering, LEAP has a BPR of 11, and CFM56 just 6.

A high BPR is the holy grail of aircraft engine manufacturing, as it means more airflow around the engine (bypass flow) compared to air going through the engine (core flow) -- and bypass flow is responsible for most of the thrust.

A stock to buy for the long term?

If these BPR figures are realized in a commercially available engine (CFM and Airbus are collaborating on testing), then engines developed through RISE could lead GE Aerospace to an even more dominant position in the industry, and another stretch of 40 years of lucrative revenue.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends GE Aerospace, RTX, and Rolls-Royce Plc. The Motley Fool has a disclosure policy.