The power and renewable energy company has had a great start to life as a stand-alone company.
Shares in GE Vernova (GEV -4.50%) rose by 14.4% in May, according to data provided by S&P Global Market Intelligence, as the spinoff from the former General Electric continued to enjoy life as a stand-alone company. The move comes after analysts at a few heavyweight financial companies upgraded price targets and gave positive outlooks for the company. In addition, GE Vernova stock rose in sympathy with its main peer, Siemens Energy, after the latter raised its full-year revenue, profit margin, and cash-flow guidance for the full year in early May.
Wall Street falls in love with GE Vernova
With the current price around $170, the analyst price target hikes still imply upside potential for the stock. For example, J.P. Morgan‘s latest price target is $186. The analyst argues that GE Vernova stock is a better value than Siemens Energy partly due to its extra exposure to the U.S. onshore wind market. Moreover, the analyst sees upside potential in GE Vernova’s gas power services business, given increasing electric loads.
RBC Capital also has a $180 price target on the stock, and its analyst notes its valuation relative to peers. Siemens Energy stock is also up strongly in 2024, with a 109% gain at the time of writing, which has helped push up its relative valuation.
Where is GE Vernova stock heading?
With its electrification and power segments solidly profitable and generating cash, the swing factor in GE Vernova’s earnings over the next few years will be its wind segment. The segment is still unprofitable, but the key to management achieving its aim of multiyear margin expansion in the segment comes from working through less favorable offshore wind orders (procured in less inflationary periods) in its backlog while increasing the margin on new offshore wind orders.
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Is GE Vernova stock a good value?
It’s a compelling proposition, and Wall Street analysts are pricing in significant profit margin expansion in the coming years, dropping down into net income more than doubling from 2024 to 2026 and free cash flow doubling from almost $1 billion in 2024 to $2 billion in 2026.
That said, valuation still matters, and so does risk assessment. The stock currently trades on 29 times its estimated 2025 earnings. That’s hardly cheap for a company that has yet to start making money in its offshore wind business. Many things can happen before the stock begins to look like a good value, and it’s hard not to think the current valuation is a little stretched.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.