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Ge Vernova's Stock Gets Its First Upgrade After 14% Pullback in Trading Debut

April 8, 2024
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On Monday, the stock of GE Vernova Inc. experienced a notable surge, jumping by 6%. This surge followed an upgrade to a "buy" equivalent rating from JPMorgan, a renowned financial institution. The company, specializing in renewable energy and power, had recently been spun off from General Electric Co. Analyst Mark Strouse, in a significant move, revised his rating on GE Vernova's stock, which trades under the symbol GEV, from neutral to overweight. This decision came after the stock had undergone a 14% decline during its initial week of trading subsequent to the spin-off.

In a note addressed to clients, Strouse articulated his rationale behind the upgrade, emphasizing that the recent pullback presented an enticing opportunity for investors to enter the market. He expressed confidence in GE Vernova's potential to become a core holding within the U.S. and global electrification sector. Strouse had initiated coverage of GE Vernova just the week prior, highlighting the distinct challenges faced by each of its core businesses over the past decade: power, wind, and electrification.

Despite these challenges, Strouse commended the company's management for demonstrating commendable operational execution, particularly evident in the ongoing multi-year turnarounds within its power, onshore wind, and grid divisions. This turnaround, he noted, was primarily facilitated by organizational streamlining, strategic product and market focus, and cost reduction measures.

Specifically, Strouse underscored the resilience of GE Vernova's power business, citing its ability to generate steady cash flow and provide stability within the company's portfolio. While the onshore wind segment showed signs of recovery, challenges persisted in the offshore sector. Electrification, on the other hand, emerged as a promising avenue for diversification and future growth.

Looking ahead, Strouse identified the upcoming quarterly earnings reports as pivotal catalysts that could affirm the ongoing margin recovery and provide insights into increasing power demand, particularly from data centers and the electrification of transportation. He speculated that heightened usage of existing gas turbine fleets by customers to meet demand could translate into substantial service opportunities for GE Vernova, further bolstering revenue and earnings expectations.

Furthermore, Strouse pointed out the significance of booking strength as an early indicator of demand, especially considering the considerable lead times associated with GE's gas turbine and high-voltage direct current products. Despite near-term challenges, industry forecasts predicting a substantial rise in data center electricity demand over the next few years boded well for the company's long-term prospects across its various segments.

In terms of valuation, Strouse deemed GE Vernova's current trading multiple of 11.8 times JPMorgan's fiscal 2025 EBITDA estimate as attractive, particularly when compared to peers within each segment. He concluded his analysis with a year-end price target of $141, representing an approximate 8% upside potential from the current stock price.

In summary, the recent stock surge coupled with the positive rating upgrade from JPMorgan reflects growing investor confidence in GE Vernova's prospects within the renewable energy and power sector. Analyst Mark Strouse's bullish outlook underscores the company's potential to emerge as a key player in the evolving landscape of electrification and sustainable energy solutions

Cathy Hills
Associate Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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