GE Vernova (GEV) has become an undeniable favorite on Wall Street since it split from parent company General Electric earlier this year. Based on a recent stream of consistently bullish brokerage notes, experts are getting more and more excited about the potential for the clean energy and power arm of the old-school conglomerate - which now trades as three separate entities, with GE Healthcare (GEHC) and GE Aerospace (GE) the spin-off sister stocks to GEV.
Since opening at $115 back in its late-March debut, GEV has more than doubled in value. More recently, with clean energy stocks catching a fresh tailwind from the Fed's jumbo rate cut, GEV hit a new all-time high of $250 last Friday, Sept. 20.
The stock's breakout is also happening as the world is pouring more than $3 trillion into energy investments in 2024, with a whopping $2 trillion of that going to clean energy tech and infrastructure - led by surging demand from growth areas like data centers and charging stations for electric vehicles (EVs).
Just as the stock price has more than doubled in recent months, so has the number of Wall Street analysts calling GEV stock a “Strong Buy." Here's a closer look behind the excitement about GEV, with experts citing everything from positive industry trends to high hopes for futures dividends shareholder-friendly moves as key reasons for their optimism.
Reason #1: Strong Balance Sheet
GE Vernova's financial health is impressing Wall Street, and for good reason. The company's debt-free balance sheet provides significant flexibility, a notable advantage in an industry that often requires substantial capital investments.
The second quarter 2024 results further reflect GE Vernova's strong financial position. The company reported net income of $1.28 billion, a significant improvement from the $149 million loss in the same quarter of the previous year. This translated to earnings per share (EPS) of $4.65, or $1.02 on an adjusted basis, which beat expectations.
Beyond profitability, GE Vernova is generating impressive cash flow. In their latest earnings report, the company posted a positive free cash flow of $821 million for Q2 2024, reversing its year-ago outflows. This cash generation gives the company ample resources to fund growth initiatives, invest in R&D, or potentially return value to shareholders.
Management also raised their full-year 2024 guidance, and now expecs revenue to trend towards the higher end of its $34-35 billion range. GEV also hiked its forecast for free cash flow to $1.3-$1.7 billion, up from $700 million-$1.1 billion previously.
Reason #2: Rising Power Demand
Global electricity demand is on the rise, which has created a favorable market environment for energy companies like GE Vernova.
Jefferies analysts, who initiated coverage of GE Vernova with a Buy rating and a $261 price target, noted that the power industry has shifted to a "seller's market" due to increased demand. This favorable market dynamic is anticipated to boost GE Vernova's margins substantially, as the company is recognized as a "top-3 player" in key sectors like wind turbines, natural gas-powered turbines, and electrification.
As companies expand their power generation capabilities to meet growing energy demand, GE Vernova is expected to be a preferred supplier, due to its extensive backlog of orders. The company reported total orders of $11.8 billion in Q2 2024, exceeding revenue by 1.4 times. This is significant, considering the company's enterprise value of $41 billion.
The company is also expanding worldwide. GEV just bought out its partner in a gas turbine business in Saudi Arabia, giving it a foothold in the oil-rich country as it attempts to diversify its energy supply. GEV also is also tackling the task of improving Algeria's power grid, and is selling wind turbines for a project in Romania.
And in Italy, GE Vernova has started a new partnership to work on renewable energy projects and tap into the country's growing clean energy market. This diverse portfolio allows GE Vernova to meet the growing power needs of various industries worldwide, including the rapidly expanding data center market.
Reason #3: Dividend Optimism
GE Vernova's potential for shareholder-friendly capital allocation has also caught the attention of Wall Street analysts. Although the company doesn't currently pay a dividend, there are strong indications that this could change in the near future.
Barclays, in their recent initiation at “Overweight,” highlighted the possibility of substantial buybacks and “rapid” dividend increases for GE Vernova.
The company's strong financial position, including its debt-free balance sheet and expected free cash flow growth, provides a solid foundation for these potential shareholder-friendly actions. With a healthy financial outlook, GE Vernova has more flexibility to implement buybacks or introduce dividends without compromising its growth initiatives.
Management may provide an update on its capital allocation priorities, including dividends and share repurchases, at its Dec. 10 investor event.
The Analyst Consensus on GEV Stock
Wall Street's enthusiasm for GE Vernova is reaching new heights, with a robust "Strong Buy" consensus rating from 18 analysts. The breakdown shows 13 "Strong Buys," 2 "Moderate Buys," and 3 "Hold" recommendations - much improved from the “Moderate Buy” consensus of a few months back, when GEV had only 6 “Strong Buys” and even 1 “Strong Sell" rating.
On average, analysts have a mean price target for GE Vernova of $227.12 per share. That's a discount to Friday's closing price, but the Street-high price target of $300 suggests the stock could rise up to 22% from here.
Conclusion
In conclusion, Wall Street's love affair with GE Vernova stock boils down to three key factors: a rock-solid financial foundation, the company's ability to capitalize on growing global power demand, and the likelihood for shareholders to reap the rewards via buybacks and dividends down the line. With analysts singing its praises and a bright future in the energy sector, GE Vernova seems poised for a bright long-term future.
On the date of publication, Ebube Jones 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.
