GE Vernova: Raising Valuation on Higher Long-Term Revenues, Margins

Key Morningstar Metrics for GE Vernova

• Fair Value Estimate: $320
• Morningstar Rating: ★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

GE Vernova Stock Update

GE Vernova shares are up nearly 50% year to date, handily outperforming the broad market, as outer-year financial expectations continue to increase.

Why it matters: We revisited our financial assumptions after CEO Scott Strazik spoke at an investor conference last week.

• Strazik discussed increased likelihood of outperforming long-term financial expectations set forth in December 2024 as a result of gas power and electrification momentum.
• We now forecast revenue growing to $50 billion by 2028 (9% compound annual growth rate, 2024-28), up from our prior forecast of just under $47 billion. Higher revenue from gas power as well as electrification account for the increase.

The bottom line: We are increasing our fair value estimate for narrow-moat GE Vernova stock to $320 from $280 because of higher long-term revenue and margin expectations.

• Narrow-moat GE Vernova remains well positioned to capitalize on growing electricity demand, but we think its current valuation adequately reflects future revenue growth and margin expansion. We view shares as overvalued following the rally in recent weeks.
• We believe investor focus remains on how high GE Vernova’s margins could go during the looming upcycle, while we take a more “through the cycle” approach to its valuation given industry cyclicality.

Between the lines: We forecast power segment revenue to grow at an 11% CAGR 2024-28 as higher equipment prices and its mid-2026 capacity expansion drive growth. We peg current gas plant capital expenditures at approximately $2,300 per kilowatt, up from $1,200-$1,500 a few years ago thanks to higher turbine and engineering/construction costs.

• Further pricing on gas power equipment orders could represent upside to our financial expectations. We see a dearth of baseload power options outside of gas at present, with new coal unlikely for environmental reasons and nuclear relatively more expensive and facing a longer development timeline than gas.