In its first quarter since being spun off by General Electric on April 2, GE Vernova (GEV) reported GAAP diluted EPS of $4.69 compared with a pro forma loss of $0.55 in 23Q2. This quarter’s results included an $847 million pretax gain from the sale of a portion of its Steam Power business (estimated $3.07 per share) and a $254 million benefit ($0.92 per share) from an arbitration refund in its dispute with a multiemployer pension plan Excluding those and other exceptional items, I estimate that non-GAAP EPS was $0.09, compared with a loss of $0.50 in 23Q2. Revenues rose 3% to $8.2 billion. All segments reported higher adjusted EBITDA. Free cash flow, according to my calculations, jumped from $1.1 billion to $2.0 billion.
Management now expects that revenues will trend toward the higher end of its $34-$35 billion guidance range. Its adjusted EBITDA margin guidance is essentially unchanged at 5%-7%. It also raised its free cash flow guidance (CFOA minus capex) to $1.3-$1.7 billion (from $0.7-$1.1 billion previously).
My projections for 2024 are in line with that guidance. They anticipate revenues of $35 billion, adjusted EBITDA of 6.5% and free cash flow of $1.5 billion. That translates into GAAP EPS of $7.86 and non-GAAP adjusted EPS of $2.91. My projections for 2025 are also in line with the guidance given at GEV’s Investor Day in March. They show revenue growth of 6.8% (vs. GEV’s mid-single-digit (MSD) guidance), adjusted EBITDA margin of 7.7% (low-end HSD) and free cash flow of $1.5 billion ($1.2-$1.8 billion). That works out to GAAP EPS of $6.45 and non-GAAP adjusted EPS of $5.61 for 2025.
Based upon my projections, I have established a price target of $196, equal to 30 times projected 2025 GAAP EPS of $6.45 and 35 times non-GAAP adjusted EPS of $5.61. The non-GAAP multiple is below the current 2024 non-GAAP multiple of 61, but still elevated. It anticipates that earnings growth will continue beyond 2025 at a rate well above market averages, reflecting the potential growth in all three of GEV’s business segments, including Power, which is expected to benefit from global growth in the demand for electricity, Electrification, which is benefitting from upgrades in the electric grid, and Wind, which is expected to become profitable in 2025.
My price target represents a potential return of about 10% from the current quote. Accordingly, my performance rating on the stock is neutral. After the spin-off, the stock rose sharply from its mid-April lows (along with the rest of the market), but it has been rangebound since May. It has also been volatile over the past two days, plunging to the bottom of its trading range yesterday, but rebounding sharply to the high end of that range today. That could be a precursor to a near-term sell-off. The company has been struggling to return the Wind business to profitability for years now. Although management is confident about Wind’s future, recent problems offshore, with blade failures at MV Wind and Dogger Bank, suggest ongoing challenges that could delay a return to profitability. Although GE Vernova is poised to benefit from the energy transition to address climate change over time, there will probably be a better entry point for investors in the months ahead.
This is a summary of my recent report on GE Vernova, Inc. (GEV). To obtain a copy of the full report, please reach out to me using the contact information provided below.
August 7, 2024. (Report published on July 31, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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