GE Vernova: We Believe In Margin Recovery Potential

Key Morningstar Metrics for GE Vernova

• Fair Value Estimate: $138.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

We are initiating coverage of GE Vernova GEV with a no-moat rating and a fair value estimate of $138 per share. We view the stock as fairly valued following a runup once shares began trading on a when-issued basis last week.

GE Vernova is a global power behemoth, with an installed base accounting for approximately 30% of the world’s electricity generation. The company’s gas power business has the largest installed fleet in the world and offers steady revenue contribution, given its 70% services revenue mix. Its wind segment is a leader in the onshore wind turbine market and is poised to benefit from a rebound in US onshore wind demand in coming years, coupled with long-term optionality from offshore wind. Complementing its power generation activities is the electrification segment, which offers solutions to orchestrate electricity from the point of generation to the point of consumption.

Despite being a leader in its core end markets, GE Vernova has no moat, consistent with our ratings for comparable companies, such as Siemens Energy SMNEY. GE Vernova’s gas power business is predominantly services-oriented in an oligopolistic market consisting of itself, Siemens, and Mitsubishi. Despite the market structure and heavy service mix, the industry’s profitability lags more moaty service-oriented industrials like elevators and aircraft engines.

Within its wind segment, GE Vernova has historically been in the top two or three in market share in the non-China market, trailing leader Vestas. The wind segment has historically had uneven profitability and less service revenue mix. However, we do see evidence of an improving competitive landscape as the industry slows the pace of new product introductions, which has plagued profitability in recent years.