GE Vernova (GEV) reported a 24Q3 GAAP diluted loss per share of $0.35 compared with 23Q3’s pro forma loss of $0.62. This quarter saw a big increase in SG&A from standalone corporate and higher restructuring costs. Excluding those and other exceptional items, I estimate that non-GAAP EPS (which is not defined by the company) was $0.07, compared with a loss of $0.94 in 23Q3. The Power and Electrification segments reported higher adjusted EBITDA, but Wind’s negative EBITDA increased. Free cash flow jumped from zero to $1.0 billion, due to working capital management and other non-operating factors.
The results fell short of my projections. I had expected GAAP EPS of $1.08 and non-GAAP adjusted EPS of $0.87. (My definition of adjusted EPS uses the same exceptional items as the company in its definition of adjusted EBITDA, after applying a 10% tax rate.) Revenues came in lighter in Power, but were higher than expected in Wind. Segment EBITDA was also lower in Power and Wind’s loss was greater than expected.
Even so, management reaffirmed its full year guidance. It expects that revenues will trend toward the higher end of its $34-$35 billion guidance range. Adjusted EBITDA margin is pegged at 5%-7%. Free cash flow (CFOA minus capex) is trending to the high end of its $1.3-$1.7 billion guidance range.
My projections for 2024 are in line with that guidance: My model shows revenues of $35 billion, adjusted EBITDA margin of 6.0% and free cash flow of $1.6 billion. That equates to GAAP EPS of $6.50 and non-GAAP adjusted EPS of $1.75. I have made few changes to my 2025 projections, which anticipate revenue growth of 6.8%, adjusted EBITDA margin of 7.7% and free cash flow of $1.7 billion. That works out to GAAP EPS of $6.45 and non-GAAP adjusted EPS of $5.61 for 2025.
GE Vernova’s stock has surged 113% since its debut in late March, outperforming the S&P 500’s 11% advance. It has benefited from positive investor sentiment about the growth prospects for electricity demand from the expected worldwide expansion in data centers running AI and machine learning applications. GEV is also well positioned to develop climate friendly sources of power, such as wind and advanced small modular nuclear generators. Its Electrification business will benefit from grid modernization. Yet, competition in the wind business is tough and the industry is still grappling with quality issues for the largest offshore turbines. GEV is aiming for profitability in its Wind business in 24Q4, but it is still uncertain whether the business can generate sustained profitability going forward.
Given these challenges and uncertainties, it is surprising to see GEV’s stock advance so sharply right out of the gate. The stock closed today at $279.88, which gives it a valuation of 43 times projected 2024 and 2025 GAAP earnings. My price target of $196 assumes a comparatively modest but nonetheless aggressive valuation multiple of 30 times projected 2025 GAAP earnings. Since the stock is now valued at 30% above my price target, I am lowering my performance rating on the stock from “4” (Underperform) to “5” (Sell).
This is a summary of my recent report on GE Vernova (GEV). To obtain a copy of the full report, please reach out to me using the contact information provided below.
October 27, 2024. (Report originally published on October 24, 2024.)
Stephen P. Percoco
Lark Research
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Linden, New Jersey 07036
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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