GE Vernova (NYSE: GEV) stock price has done well as an independently traded company. It has surged for three consecutive weeks, reaching a record high of $254, which is about 122% above the lowest point this year.
GE Vernova is a top energy company
GE Vernova is a leading company that manufactures some of the most advanced engines in the power industry. In its power division, the company manufactures engines used in the hydro, nuclear, steam, and gas industries.
The company is also a big player in the wind industry, where it makes offshore and onshore wind turbines. In this division, it competes with companies like Siemens, Suzlon Energy and Inox Wind.
GE Vernova is also involved in other areas in the energy industry like software, consulting, solar and power, and grid solutions. Altogether, its solutions are used worldwide, and the rising infrastructure spending is a positive thing.
In addition to selling the units, GEV makes substantial sums of money in servicing contracts by most utility companies.
For a long time, GE Vernova was General Electric’s top laggard, especially because of the wind business. Most wind turbine companies struggled as central banks hiked interest rates, leading to some big project cancellations.
GEV earnings download
GE Vernova published its financial results, which showed that its business was doing well. Its power orders jumped by $5 billion in the last quarter, bringing its total backlog to about $70 billion. As a result, its EBITDA jumped from $466 million to over $613 million.
The wind division was the biggest disappointment because of the recent project cancellations and weak investments in the industry. Its orders stood at $2.2 billion in the second quarter, lower than the $3.9 billion it made in the same period in 2023.
The wind’s division revenue was $2.1 billion, down from the $2.6 billion it made in Q2’23. On the positive side, the company narrowed its EBITDA loss from over $259 million to $117 million.
GE’s electrification business is doing well even after its orders slipped slightly to $4.8 billion. Its total backlog rose from $15.4 billion to $20.7 billion.
The company expects that its power business will have an organic growth of mid-single-digits while the wind business will be flat. Its electrification business will have mid to high-teens.
Altogether, the company’s revenue for the year will be between $34 billion and $35 billion while its adjusted EBITDA margin will be between 5% and 7%. GE Vernova’s free cash flow is expected to grow to between $1.3 billion and $1.7 billion.
GEV valuation metrics
A key concern about GE Vernova is that its business has become highly overvalued as its market cap has jumped to almost $70 billion.
Looking at its balance sheet, the company has over $5.7 billion in cash and short-term investments and over $30.7 billion in inventories.
On the other hand, the company has over $16.53 billion in unearned revenue, capital leases of about $979 million. Its other non-current liabilities have risen to over $7.2 billion. These numbers mean that the company has a good balance sheet.
However, there are signs that the firm is quite overvalued because it trades at a forward price-to-earnings ratio of 37, which is higher that the industry average of 22.7. This valuation metric is also higher than other comparable companies like Siemens Energy, Schneider Electric, and Mitsubishi Heavy Industries.
Regarding the free cash flow, which is the most important figure in a company, GE Vernova has a multiple of 30, double the industry’s average.
These valuation multiples are likely because analysts expect the firm to continue growing its margins and benefit from low interest rates in the US and other countries. Most importantly, it is nearing profitability in its wind power business.
The company also has demand tailwinds as most countries go through substantial infrastructure buildup.
Analysts have become highly optimistic about the company, with Bank of America upgrading it from neutral to buy. RBC Capital, Jefferies, and Barclays.
Nonetheless, the average stock target among analysts is $236, lower than the current $251, implying a 6% pullback.
GE Vernova stock price analysis
The GE Vernova share price has been in a strong bull run after its spin-off, soaring from $114.95 to over $251. It has outperformed popular companies like Siemens Energy, ABB, and Mitsubishi Heavy.
GEV’s performance has also mirrored that of GE Aviation and GE Healthcare Technologies.
The stock has remained above the 50-day moving average, while the Relative Strength Index (RSI) and the MACD indicators have all pointed upwards.
Therefore, I suspect that the stock will pull back slightly, potentially to $200, and then resume the bullish trend later this year.
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