GE Vernova's stock gets its first upgrade after 14% pullback in trading debut

By Ciara Linnane

Renewable energy and power company is a core holding in electrification, says analyst

GE Vernova Inc.'s stock soared 6% Monday, after the renewable energy and power company that was spun off from General Electric Co. got an upgrade to the equivalent of buy from JPMorgan.

Analyst Mark Strouse upgraded his rating on the stock (GEV), which started trading as a stand-alone company last week, to overweight from neutral after it fell 14% in its first week of trade.

"We believe the pullback presents an attractive entry point for what we believe will be a core holding for investors in the U.S./global electrification theme," Strouse wrote in a note to clients.

Strouse initiated coverage of GE Vernova last week and noted that each of its businesses-power, wind and electrification-had experienced unique challenges in the last decade.

"We believe management has shown impressive operational execution thus far in its multi-year turnarounds in power, onshore wind, and grid, primarily driven by organizational simplification, narrowing product and market focus, and cost-outs," the analyst wrote in his initiation note.

The power business generates solid cash and offers stability, while onshore wind is recovering but the offshore backlog remains a challenge. Electrification provides diversification and should be a key growth driver in the next few decades, said the note.

On Monday, Strouse said the next couple of quarterly earnings will be key catalysts and should confirm that the margin rebound already under way is intact. Investors will also look for evidence of increased power demand, particularly from data centers, but also from manufacturing onshoring and the electrification of transportation.

"We believe customers flexing up usage of existing gas turbine fleets to meet demand before incremental infrastructure is added could lead to larger than average annual service opportunities for GEV," the analyst wrote. "Given above-average margins for GEV's gas service business, we believe this could potentially present upside to both revenue and Ebitda expectations near term."

Ebitda is earnings before interest, taxes, depreciation and amortization.

Given equipment lead times of two to four years that are typical of GE's combined-cycle gas turbine and high-voltage direct current products, booking strength will be another early indicator of demand, and not near-term upside to equipment revenue, said the note.

But with several industry forecasts calling for data center electricity demand to increase two to three times over the coming years, there should be upside to medium to long-term forecasts for each of the company's segments, said Strouse.

Regarding valuation, GE Vernova is trading at 11.8 times JPMorgan's fiscal 2025 Ebitda estimate, which Strouse views as attractive valued against a comparable set for each segment.

His year-end price target is $141, or about 8% above the stock's current price.

Read also: GE Aerospace's stock kicks off its first week as the S&P 500's best performer

-Ciara Linnane

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04-08-24 1131ET

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