GE Vernova Inc. GEV recently announced that it has signed an expanded multi-year Strategic Collaboration Agreement (“SCA”) with Amazon Web Services (AWS). This agreement is expected to benefit electric utilities and other energy companies.
Notably, the SCA includes GEV’s Asset Performance Management and CERius software delivered in the AWS Cloud, which will help energy companies reform how they manage their asset and emissions data for addressing the industry-wide energy transition. This expanded strategic alliance aims to aid energy organizations in increasing reliability, lowering costs and making measurable progress on energy transition goals.
With the entire energy sector reducing its carbon footprint rapidly, the need for software for collecting and managing greenhouse gas (GHG) emissions data, providing valuable insights, and identifying opportunities for reducing carbon emissions is increasing. Amid this trend, the latest SCA signed by GEV may encourage energy investors to choose this stock. However, before making any hasty decision, let’s delve into the company’s year-to-date performance, growth prospects as well as risks (if any).
GEV Stock Outperforms Industry, Sector & S&P500
Shares of GE Vernova have surged an impressive 131.2% in the year-to-date period, outperforming the Zacks Alternative-Energy industry’s growth of 65.7% and the broader Zacks Oils-Energy sector’s return of 8.2%. It has also outpaced the S&P 500’s surge of 26.3%.
A similar stellar performance has been delivered by other industry players, such as Talen Energy Corporation TLN, Constellation Energy Corporation CEG and Verde Clean Fuels VGAS, whose shares have surged 226.2%, 95.6% and 85.6%, respectively, year to date.
GEV YTD Performance
Image Source: Zacks Investment Research
What’s Driving GEV Stock?
The global shift toward clean energy solutions continues to be a key growth catalyst for GEV, a renowned renewable energy equipment and services provider. To this end, it is imperative to mention that the company’s electrification segment has been witnessing solid growth trends in recent times, as demand for large-scale transmission-related equipment to interconnect renewables and move bulk power is rising. Consequently, the segment registered a notable 22.3% year-over-year growth in its third-quarter revenues.
GEV is also a prominent provider of wind energy solutions, with an installed base of approximately 54,000 onshore wind turbines worldwide. It also enjoys prowess in the offshore wind energy platform, with a portfolio of offshore wind turbines ranging from 6 MW megawatt (MW) to 14 MW. Impressively, the company has invested more than $400 million in the development of the world’s most powerful wind turbine — Haliade X.
Indeed, the company’s proven prowess in the electricity generation industry, particularly renewable, has been boosting its top-line growth prospects.
Evidently, in the third quarter of 2024, GEV’s orders of $9.4 billion exceeded revenues by 1.1X and registered a 17% organic growth, whereas the top line improved 10% organically on a year-over-year basis. It ended the third quarter with a solid cash balance worth $7.4 billion. Such impressive operating results might have boosted investors’ confidence in this stock. This has been reflected in GEV’s solid share price return so far this year.
Will GEV Continue to Grow?
Looking ahead, GEV has been steadily investing in new product developments to further boost its growth. Notably, the company is making long-term investments in its Gas Power business, including decarbonization technologies that will provide its customers with lower carbon-emitting and more reliable power.
Moreover, in Nuclear Power, GEV has an agreement with a customer for the deployment of small modular nuclear reactor technology, the first commercial contract in North America, with the potential to enable reductions in nuclear power plant costs and cycle times. This should fetch revenues for the company in the near future.
GEV’s grid solution equipment and services should also continue to experience a robust growth trend in the coming years. Global electricity demand is expected to rise at a faster rate over the next three years — an average of 3.4% annually through 2026 (as per the latest report published by the International Energy Agency).
Let’s take a quick look at its near-term estimates to see whether they reflect solid growth prospects.
Estimates for GEV
The Zacks Consensus Estimate for 2024 and 2025 sales implies an improvement of 5.3% and 6.8%, respectively, year over year.
However, the Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved south 13.7% and 0.7%, respectively, over the past 60 days. The downward revision in earnings estimates indicates analysts’ declining confidence in the stock.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Risks to Consider Before Choosing GEV
Despite the aforementioned growth opportunities, GEV faces certain challenges that one should consider before investing in this stock. To this end, it is imperative to mention that the offshore wind industry has been facing increased challenges lately in the form of increased material costs and persistent supply-chain challenges. This, in turn, has led to several project cancellations in recent times.
As a manufacturer of wind turbines, GEV has been experiencing pressure in its Offshore Wind business related to its product and project costs. Changes in execution timelines or other adverse developments might have an adverse impact on GEV’s cash collection timelines and contract profitability, resulting in losses beyond current expectations.
Moreover, given the long-cycle nature of its power generation business, the company expects the impact of inflation to continue to be challenging for its business, which, in turn, might hurt the pricing of its products and services.
GEV Stock Trading at a Premium
In terms of valuation, GEV’s forward 12-month price-to-earnings (P/E) is 57.23X, a premium to its peer group’s average of 13.84X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to its peers.
Image Source: Zacks Investment Research
Final Thoughts
To conclude, investors interested in GEV Vernova should wait for a better entry point, considering its premium valuation, downward revision in annual earnings estimate and the challenges it is facing in the wind market. Also, GEV currently has a VGM Score of F, which is not a favorable indicator of strong performance.
However, those who have already invested in this Zacks Rank #3 (Hold) company may continue to do so as its upbeat sales estimates, solid share price returns year to date, as well as benefits of steadily growing renewable penetration across industries offer solid prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
