French bank warns: After a 15% surge in aerospace and defense stocks, the risk of lower-than-expected financial reports has sharply increased.

French bank analyst Matthew Aker of Paris mentioned in a forward-looking report that as American Airlines Group Inc. and aerospace and defense stocks enter the fourth quarter earnings season, the market has high expectations for the performance of these stocks. Since early December, the sector's stock prices have risen by about 15%, significantly outperforming the overall market. Aker pointed out that although the industry fundamentals still provide strong support overall, the recent rebound in the sector has increased the risk of underperformance. Regarding Boeing Company (BA.US), Aker cautioned that investors may have become overly optimistic about the company's free cash flow. In a report to clients on January 8th, he wrote: "Investor sentiment towards the outlook for free cash flow has rapidly changed from extremely pessimistic to overly optimistic." He also emphasized that many are betting on Boeing Company's free cash flow to rebound significantly this year, from around $20 billion to a level higher than the companys previous guidance of $100 billion. French bank Paris is more cautious, expecting Boeing Company to come closer to its existing expectations, with cash recovery speed "slower than expected." The bank predicts that by 2029, Boeing Company will generate $9 billion in free cash flow, including about $2 billion related to pensions. Regarding GE Aviation (GE.US), Aker expects the preliminary performance guidance for 2026 to be in line with the management's previous guidance, rather than exceeding expectations. He believes a situation similar to last year may occur when the beginning-of-year EBIT guidance was essentially in line with the company's expectation of a $1 billion year-on-year increase. Although bulls may expect performance close to $11 billion, Aker expects the preliminary outlook to be close to $10 billion, which may be seen as conservative and limit the downside risk of the stock. Aker remains positive on Raytheon Technologies (RTX.US). Despite mixed market sentiment towards the stock, he firmly believes it is undervalued. He mentioned that French bank Paris continues to see strong growth potential for Collins Aerospace business and profit margin improvement for Raytheon Technologies. The bank believes the market consensus of around $8 billion in free cash flow by 2026 is reasonable, aligning with Raytheon Technologies' previous target guidance of $8 to $8.5 billion. Overall, French bank Paris made moderate adjustments to the forecasts for some companies before the earnings announcement. Specifically: a slight positive impact on cash flow from Boeing Company's fourth-quarter delivery volume; a slight increase in the 2026 EBIT expectations for GE Aviation; and profit forecast reductions for Raytheon Technologies due to discussions of non-core projects at a recent investor conference. Aker stated that the bank raised the target stock prices for most companies to reflect a recent revaluation of the sector and reaffirm their relative preference, which is to be more positive on Raytheon Technologies before the earnings announcement, rather than Boeing Company and GE Aviation.