GE Vernova‘S (NYSE: GEV) The stock is up 166% since its initial public offering in the spring, marking an incredible turnaround for a company that was once the problem child of the former General Electric. Here’s why the stock has outperformed and what you can expect from the company in the coming years.
Successful investing often happens when a stock’s story changes with respect to its long-term growth prospects. That is undoubtedly what has happened throughout the year, and it is not difficult to see other examples in the market that reflect the same changes positively impacting GE Vernova.
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|
GE Vernova segment |
EBITDA for the full year 2023 |
EBITDA for the full year 2024 |
|---|---|---|
|
Current |
$923 million |
$1,457 million |
|
Electrification |
$66 million |
$396 million |
|
Wind |
($744) million |
($607) million |
Data source: GE Vernova Presentations. EBITDA = earnings before interest, taxes, depreciation and amortization.
There is increasing recognition that the transition to clean energy, while still underway, will take longer than expected. That’s excellent news for GE Vernova’s nuclear power segment (whose main profit generator is gas turbine equipment and services). After years of speculation about the decline in the importance of natural gas as an energy source, there is a new recognition that gas plays a crucial role in the transition to clean energy and will be part of the energy mix for decades, because it is reliable and cost effective. effective compared to the intermittent nature of renewable energy.
In addition, the market is moving toward GE’s heavy-duty gas turbines, including the flagship HA turbines, where the company can expect many years of higher-margin service revenues. The improvement in orders is in the chart below, and CFO Kenneth Parks noted on the recent earnings call: “Based on the backlog, we are funding capacity expansion from customer orders and related deposits to enable the delivery of 70 to 80 heavy-duty gas turbines annually from 2026.”
|
Gas turbine orders |
2023 YTD |
2024 YTD |
|---|---|---|
|
Heavy duty (units) |
59 |
78 |
|
HA turbines (units) |
32 |
44 |
|
Aeroderivatives (units) |
27 |
34 |
|
Gas turbines (Gigawatt) |
7.4 GW |
14.1 GW |
Data source: GE Vernova.
GE Vernova is also a player in the small modular reactor (SMR) market, attracting a lot of interest Alphabet‘s ( Google ) deal to buy nuclear power from Kairos Power and Amazon.com‘s agreement to invest in RBEs.
The explosion in AI-related energy demand means that expectations for spending on power generation and electrification solutions have also improved. That supports gas turbine orders for GE Vernova and also means that the second largest segment, electrification (transmission and distribution, and storage solutions), is also generating robust sales and order growth.
The strong increase in orders over the past year means that the electrification backlog (remaining performance obligations) amounted to $21.9 billion at the end of the third quarter, compared to approximately $6 billion at the end of 2022. Management expects that electrification revenues will grow by $21.9 billion. a high percentage of teenagers in 2024, with an EBITDA margin at the upper end of high single-digit expectations.
The renewable energy segment is more mixed. On the plus side, the onshore wind sector is profitable and margins are growing, and CEO Scott Strazik expects more onshore margin expansion in 2025. However, onshore wind profits do not offset ongoing losses in the offshore wind sector, and GE Vernova has to operate through problematic offshore wind contracts.
The problems with offshore wind highlight the emerging cost and logistics issues associated with renewable energy. They are also responding to the increasing demand for GE Vernova’s energy segment – by far its most important segment.
The stock has benefited from improved investment and sentiment towards gas and rising investments in electric transmission and distribution, leading to more orders in the electrification segment.
The increased installed power supply, plus increasing turbine orders, will drive long-term profit and cash flow growth. At the same time, the enormous backlog in the field of electrification also guarantees sales growth in the coming years. Meanwhile, the wind segment is improving profitability. Everything points to a bright future.
With the stock trading at 53 times its all-time high for 2025 projected free cash flow, it’s hard to argue that it’s a raging buy right now. Still, investors should look to the December 10 trading update for details on the multi-year outlook. It would be wise to wait to hear that before enrolling in these levels.
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