GEV Earnings Preview: Expectations high following bullish Investor Day

GE Vernova (GEV), a leader in power and electrification technologies, will report its Q4 2024 earnings tomorrow morning, January 22, before the market opens. Analysts expect earnings per share (EPS) of $2.29 on revenue of $10.79 billion, reflecting a challenging quarter shaped by macroeconomic factors and industry-specific headwinds. Investor anticipation is high following GEV's bullish Investor Day in December, which outlined a strong multi-year outlook despite near-term hurdles.

Guidance and Long-Term Outlook

During its December Investor Day, GEV reaffirmed its fiscal year 2024 guidance, expecting revenue to trend toward the higher end of its $34-$35 billion range and adjusted EBITDA margins of 5.5%-6.0%. Free cash flow (FCF) is projected to be at the upper end of $1.3-$1.7 billion, supported by strong demand in its Power and Electrification segments. The company raised its 2025 revenue forecast to $36-$37 billion and expects adjusted EBITDA margins to expand into the high single digits. Looking further ahead, GEV aims to achieve $45 billion in revenue by 2028, driven by high-single-digit organic growth, and envisions EBITDA margins reaching 14%, a sharp improvement from current levels.

This optimistic outlook stems from robust demand for gas turbines and electrical grid equipment, which are essential for AI data centers and electrification projects. However, GEV has flagged ongoing struggles in its Wind segment due to supply chain disruptions, inflationary pressures, and uncertainty surrounding offshore wind projects, especially after President Donald Trump signed an executive order halting all wind turbine projects.

Key Drivers for the Quarter

Analysts will closely monitor GEV's performance in its Power and Electrification businesses, which have been key revenue drivers. In Q3, Power orders surged by 34% year-over-year to $5.2 billion, while Electrification orders rose 17% organically. These segments are benefiting from global investments in energy grid modernization and increased power requirements for AI-driven technologies. Pricing power, improved productivity, and capacity expansion initiatives are expected to bolster margins in these segments.

The Wind segment remains a significant concern. Management has acknowledged challenges in this area, including delayed offshore wind projects and operational inefficiencies. Notably, GEV has paused new orders for offshore wind turbines, signaling more losses in the near term. This cautious approach aligns with CEO Scott Strazik's comments about focusing on profitability rather than chasing growth in the Wind business.

Analysts’ Perspectives

Analysts have generally maintained a positive outlook on GEV, highlighting its conservative management style and strong execution in its core businesses. RBC noted that the company is poised for long-term upside due to its strategic positioning in Power and Electrification. Mizuho, while acknowledging the conservative guidance, sees opportunities for margin expansion through cost efficiencies and pricing power.

Despite the positive sentiment, some analysts have flagged downside risks. The potential impact of a strong U.S. dollar on international revenue and President-elect Donald Trump’s critical stance on wind energy could create headwinds. Short interest in GEV is low at 1.87%, and the stock has been a top performer since its spin-off from General Electric, gaining 145% since April 2024. However, the stock is expected to see heightened volatility, with an implied move of +/- 4.6% post-earnings.

2025 and Beyond

GE Vernova's growth prospects extend well into the next decade, with significant investments planned to capitalize on emerging trends. The company has committed $4 billion to capital expenditures and $5 billion to research and development through 2028. These investments aim to strengthen GEV’s technological edge in electrification and power solutions. Additionally, GEV recently announced shareholder-friendly initiatives, including a $0.25 quarterly dividend and a $6 billion share repurchase authorization, signaling confidence in its financial stability and growth trajectory.

The 2025 guidance includes revenue growth of 3%-5%, adjusted EBITDA margin expansion to high single digits, and FCF of $2.0-$2.5 billion. Analysts believe this outlook is conservative, with potential upside from pricing improvements, operational efficiencies, and increasing demand for electrification technologies.

What to Watch

Investors will focus on the following aspects during the earnings call:

- Performance of the Power and Electrification segments and updates on pricing and order trends.

- Developments in the Wind business and any potential turnaround strategies.

- Management's commentary on navigating foreign exchange headwinds and geopolitical challenges.

- Updates on the company’s capital allocation strategy, including the progress of its share repurchase program and dividend plans.

Conclusion

GE Vernova’s upcoming earnings report is expected to underscore its strengths in Power and Electrification while highlighting ongoing challenges in Wind. The company’s long-term outlook remains robust, with ambitious growth targets supported by strategic investments and disciplined management. Investors will closely watch for insights into near-term execution and any adjustments to its 2025 guidance, as GEV continues to position itself as a leader in the rapidly evolving energy sector.