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GE Vernova Stock Surges 31% YTD: Should You Buy Now or Later?
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GE Vernova Inc.’s (GEV - Free Report) shares have surged an impressive 31.4% in the year-to-date period, outperforming the Zacks Alternative-Energy industry, the broader Zacks Oils-Energy sector and the S&P 500. As a renowned renewable energy equipment and services provider, GE Vernova rides on rising electricity demand and enhancing grid modernization efforts.
Image Source: Zacks Investment Research
A similar stellar performance has been delivered by other industry players, such as Constellation Energy Corporation (CEG - Free Report) , Greenfire Resources Ltd. (GFR) and Verde Clean Fuels (VGAS) , whose shares have surged 64%, 49.4% and 51.7%, respectively, year to date.
With GE Vernova riding high, individuals may rush to add the stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
What Led to GEV Stock’s Price Surge?
Increasing data center growth across the globe, along with rising electricity consumption, particularly in emerging nations as well as developing economies, backed by strengthening economic activities and prosperity in these countries, has been boosting the world electricity demand. Such soaring demand for power generation has been significantly contributing to GEV’s growth, with 25% of the world’s electricity being generated using the company’s installed base of technologies, as of June 2024.
Notably, GEV’s Power business segment, led by gas power, has been witnessing significant equipment order and service revenue growth in recent times. As of June 30, 2024, GEV’s gas turbine installed base was approximately 7,000 units, with roughly 1,700 units under long-term service agreements with an average remaining contract life of 10 years.
Rising electricity demand has also been playing a crucial role in pushing up the need for a resilient energy grid. On the other hand, the rapid adoption of renewable energy sources has been another key catalyst driving grid modernization efforts globally. This bodes well for GE Vernova, with its Grid Solutions business capable of supporting grid expansion and modernization needs globally. Evidently, the company witnessed a solid 18.2% year over year growth in its Grid Solutions business, during the second quarter of 2024.
Is GEV’s Growth Sustainable?
Looking ahead, global electricity demand is expected to rise at a faster rate over the next three years — an average of 3.4% annually through 2026 (as per the latest report published by the International Energy Agency). This should bode well for GEV’s growth in the near future.
In the power generation industry, the company expects the gas power market to grow over the next decade. GEV expects gas power generation to continue to grow by low single digits, bolstering its Power segment’s revenues.
A quick sneak peek at its near-term earnings and sales estimates mirrors solid growth prospects.
Upbeat Estimates for GEV
The Zacks Consensus Estimate for GEV’s 2024 and 2025 sales reflects an improvement of 5.2% and 5.2%, respectively, year over year.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved north 20.3% and 13.1%, respectively, over the past 60 days.
The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Risks to Consider Before Choosing GEV
Despite the aforementioned growth opportunities, there are certain challenges in the industry that one should consider before investing in GEV. The offshore wind industry faces one such challenge as companies attempt to increase output and reduce cost.
As a manufacturer of wind turbines, GEV has been experiencing pressure in its Offshore Wind business related to its product and project costs. Changes in execution timelines or other adverse developments might have an adverse impact on GEV’s cash collection timelines and contract profitability, resulting in losses beyond current expectations.
Since GEV operates in emerging markets, there could be uncertainty in the timing of deal closures due to financing and other complexities, which might adversely impact its future results. Given the long-cycle nature of its power generation business, the company expects the impact of inflation to continue to be challenging for its business.
GEV Trading at a Premium
In terms of valuation, GEV’s forward 12-month price-to-earnings (P/E) is 37.03X, a premium to its peer group’s average of 13.33X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
Image Source: Zacks Investment Research
Should You Buy GEV Now?
To conclude, investors interested in GEV Vernova should wait for a better entry point, considering its premium valuation and the challenges it is facing in the wind market.
However, those who already own this Zacks Rank #3 (Hold) stock may stay invested as the company's upbeat estimates, benefits of steadily growing electricity demand as well as growing grid modernization initiatives across industries offer solid prospects.
Image: Bigstock
GE Vernova Stock Surges 31% YTD: Should You Buy Now or Later?
GE Vernova Inc.’s (GEV - Free Report) shares have surged an impressive 31.4% in the year-to-date period, outperforming the Zacks Alternative-Energy industry, the broader Zacks Oils-Energy sector and the S&P 500. As a renowned renewable energy equipment and services provider, GE Vernova rides on rising electricity demand and enhancing grid modernization efforts.
A similar stellar performance has been delivered by other industry players, such as Constellation Energy Corporation (CEG - Free Report) , Greenfire Resources Ltd. (GFR) and Verde Clean Fuels (VGAS) , whose shares have surged 64%, 49.4% and 51.7%, respectively, year to date.
With GE Vernova riding high, individuals may rush to add the stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
What Led to GEV Stock’s Price Surge?
Increasing data center growth across the globe, along with rising electricity consumption, particularly in emerging nations as well as developing economies, backed by strengthening economic activities and prosperity in these countries, has been boosting the world electricity demand. Such soaring demand for power generation has been significantly contributing to GEV’s growth, with 25% of the world’s electricity being generated using the company’s installed base of technologies, as of June 2024.
Notably, GEV’s Power business segment, led by gas power, has been witnessing significant equipment order and service revenue growth in recent times. As of June 30, 2024, GEV’s gas turbine installed base was approximately 7,000 units, with roughly 1,700 units under long-term service agreements with an average remaining contract life of 10 years.
Rising electricity demand has also been playing a crucial role in pushing up the need for a resilient energy grid. On the other hand, the rapid adoption of renewable energy sources has been another key catalyst driving grid modernization efforts globally. This bodes well for GE Vernova, with its Grid Solutions business capable of supporting grid expansion and modernization needs globally. Evidently, the company witnessed a solid 18.2% year over year growth in its Grid Solutions business, during the second quarter of 2024.
Is GEV’s Growth Sustainable?
Looking ahead, global electricity demand is expected to rise at a faster rate over the next three years — an average of 3.4% annually through 2026 (as per the latest report published by the International Energy Agency). This should bode well for GEV’s growth in the near future.
In the power generation industry, the company expects the gas power market to grow over the next decade. GEV expects gas power generation to continue to grow by low single digits, bolstering its Power segment’s revenues.
A quick sneak peek at its near-term earnings and sales estimates mirrors solid growth prospects.
Upbeat Estimates for GEV
The Zacks Consensus Estimate for GEV’s 2024 and 2025 sales reflects an improvement of 5.2% and 5.2%, respectively, year over year.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved north 20.3% and 13.1%, respectively, over the past 60 days.
The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
Risks to Consider Before Choosing GEV
Despite the aforementioned growth opportunities, there are certain challenges in the industry that one should consider before investing in GEV. The offshore wind industry faces one such challenge as companies attempt to increase output and reduce cost.
As a manufacturer of wind turbines, GEV has been experiencing pressure in its Offshore Wind business related to its product and project costs. Changes in execution timelines or other adverse developments might have an adverse impact on GEV’s cash collection timelines and contract profitability, resulting in losses beyond current expectations.
Since GEV operates in emerging markets, there could be uncertainty in the timing of deal closures due to financing and other complexities, which might adversely impact its future results. Given the long-cycle nature of its power generation business, the company expects the impact of inflation to continue to be challenging for its business.
GEV Trading at a Premium
In terms of valuation, GEV’s forward 12-month price-to-earnings (P/E) is 37.03X, a premium to its peer group’s average of 13.33X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
Should You Buy GEV Now?
To conclude, investors interested in GEV Vernova should wait for a better entry point, considering its premium valuation and the challenges it is facing in the wind market.
However, those who already own this Zacks Rank #3 (Hold) stock may stay invested as the company's upbeat estimates, benefits of steadily growing electricity demand as well as growing grid modernization initiatives across industries offer solid prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.