GE Vernova Earnings: Orders Continue to Boom Higher, but Valuation Looks Fair

Key Morningstar Metrics for GE Vernova

• Fair Value Estimate
  : $1,050.00
• Morningstar Rating
  : ★★★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : Very High

What We Thought of GE Vernova’s Earnings

GE Vernova GEV had yet another strong second quarter, with power and electrification propelling results higher. Second-quarter orders surged a resounding 88% organically, implying a book/bill of roughly 2.2 times, while gas power equipment backlog and slot reservation agreements grew to 116 GW.

Why it matters: We believe the market debate for GE Vernova has largely moved from near- to medium-term results to long-term runway into the next decade. So slot reservation agreements, which are binding preorders in the power industry, will be a leading indicator for investors to focus on.

• Manufacturing capacity will also continue to be a key focus. We think this is what matters most as the company has multiyear visibility, and earnings will come down to how fast it can fill the accelerating demand for turbine and grid equipment orders.
• We surmise the stock declined on the trading day, partly on a valuation that carries very high expectations and partly due to hopes for new manufacturing capacity. We think Vernova is taking a prudent approach under CEO Scott Strazik and is adding capacity through lean initiatives.

The bottom line: We bump our fair value estimate to $1,050 per share from $1,000 for narrow-moat-rated GE Vernova to account for higher full-year free cash flow guidance and time value of money. We also move our Uncertainty Rating to Very High from High to account for less certainty around upside risk.

• We think a higher book/bill gives GE Vernova the ability to continue to raise prices given the outsize demand from data centers powering the artificial intelligence boom. Vernova’s turbines benefit from intangible assets, given their high degree of engineering in an oligopolistic industry.
• Investors may be hoping for new manufacturing capacity to accelerate the delivery of critical equipment, but we like the lean initiatives like using incremental machinery in the existing footprint, expanding shop visit capacity, and using robotics and AI, given lessons learned from history.