Should You Buy GE Vernova Stock Ahead of Earnings?

Earlier this year, General Electric completed its split into three separate, independent companies. The three companies are now listed publicly as GE Vernova (GEV), GE Aerospace (GE), and GE Healthcare (GEHC). 

Valued at a market cap of $75.3 billion, GE Vernova is an energy business company that operates under three primary segments: Power sells electricity generated through hydro, gas, nuclear, and steam power; Wind is engaged in the manufacturing and sale of wind turbine blades; and Electrification provides grid solutions, power conversion, solar, and storage solutions.

GE Vernova's market value has more than doubled since it was listed on the NYSE in March 2024. GEV is scheduled to report its Q3 earnings before the market opens next Wednesday, Oct. 23, which will likely impact the outperforming stock's performance in the near term. Let’s see what investors should expect from this energy heavyweight in the September quarter. 

GE Vernova is Forecast to Report $8.78 Billion in Sales

According to consensus estimates, GE Vernova is forecast to report revenue of $8.78 billion and adjusted earnings of $0.22 per share. In Q2 of 2024, GE Vernova reported revenue of $8.20 billion, which suggests its top line is expected to grow sequentially. 

In the June quarter, GE’s power segment reported organic order growth of 30% in gas power and hydropower equipment orders. A strong performance in the power and electrification businesses allowed management to raise its full-year revenue guidance to $35 billion. 

Moreover, GE Vernova had forecast a full-year adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margin between 5% and 7%. At the same time, the midpoint free cash flow guidance was increased to $1.5 billion, up from an earlier forecast of $900 million. 

The company’s updated financial guidance and order growth indicate that GE Vernova is poised to benefit from earnings momentum through 2025. Looking ahead, Wall Street expects adjusted earnings for GE Vernova to expand from $2.92 per share in 2024 to $6.71 per share in 2025. 

A Wide Competitive Moat

According to GE Vernova, its customers generate roughly 25% of the global electricity using its installed base of technologies. GE Vernova has an installed base of 55,000 wind turbines totaling more than 100 gigawatts of installed capacity and the largest installed base of onshore turbines in the U.S. 

It also has 7,000 installed gas turbines, including some of the most efficient gas turbines capable of running on hydrogen blends. GE Vernova’s gas power segment delivered growth in equipment and high-margin services orders and revenue while achieving 180 basis points of margin expansion. 

Electrification is the fastest-growing segment for GE Vernova. The vertical’s profitable growth continues as customers modernize and invest in new products, such as transformers and switch gears, that are key to ensuring a reliable electricity system and connecting new generation sources. 

Its electrification orders more than doubled in Q2 in North America. Further, the segment has grown its backlog by 25% since the start of 2024, while margins expanded by 360 basis points in Q2. 

Is GEV Stock Overvalued?

Analysts have only grown more bullish on GEV lately, with the consensus opinion rising from “moderate buy” two months ago to “strong buy” today. Out of the 21 analysts covering GEV stock, 15 recommend “strong buy,” one recommends “moderate buy,” and five recommend “hold.” 

Priced at 40x forward earnings, GEV stock trades at a lofty valuation. However, the company is forecast to more than double its adjusted earnings in the next 12 months. Already, GE Vernova expanded its gross margins by more than six percentage points year over year in Q2. Further, its operating margin in Q2 stood at 8.5%, compared to -1.2% in the year-ago period. 

Notably, at its current price around $274, GEV trades above analysts' average 12-month target price of $262.85, and the stock set a new all-time high earlier today. With the shares still technically overbought, GE Vernova may need to report blowout numbers to manage a post-earnings rally - which means investors may soon get a chance to buy GEV stock at lower prices.

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On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.