GE Vernova Is In the Right Place at the Right Time
Key Points
GE Vernova is a vital supplier to the utility sector, operating across carbon and clean power segments.
A strong backlog suggests the future will remain as bright as the recent past.
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GE Vernova (NYSE: GEV) was spun off from General Electric (which is now GE Aerospace (NYSE: GE)) in 2024, and it couldn't have happened at a much better time. As a stand-alone business, GE Vernova is focused on providing products and services to the utility industry. And that industry is in the midst of a renaissance.
What does GE Vernova do?
When it comes to power, it might be better to ask what GE Vernova doesn't do. Its products and services include power generation from carbon fuels, hydro, nuclear, and wind (onshore and offshore). It also helps build and support the electrical grid, including energy storage technologies. And while the company isn't a player in the solar panel space, it does make inverters that are used in solar arrays, so it really plays across the entire electricity landscape.
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The company is incredibly well-positioned to support the step change in demand occurring in the electric utility sector. Between 2000 and 2020, electricity demand increased by 9%. Between 2020 and 2040, demand is expected to increase by 55%. That will require massive investments in energy infrastructure, which should support strong demand for GE Vernova's products and services for years to come.
To put a number on that, at the end of 2025, the company's backlog stood at $135 billion. That's a huge number, but management expects it to increase to $200 billion by 2027. GE Vernova is clearly in the right place at the right time, with a direct line of sight into its future revenue stream.
Investors are aware of the positives
So GE Vernova looks like a well-positioned business. However, as an investment, there's one small problem: Valuation. The stock's price-to-sales ratio is 6.6x. Its price-to-earnings ratio is 51x. And its price-to-book value ratio is nearly 22x. Given the short history as a stand-alone business, there are no longer-term averages to compare against. However, all of those valuation metrics are high on an absolute basis.
As a comparison point, the S&P 500 index (SNPINDEX: ^GSPC) is trading near all-time highs, with an average P/E ratio of just under 28x and a P/B ratio of 5.1x. GE Vernova is well-positioned for success, but if you have even the slightest value bias, you should probably keep the stock on your wishlist. Right now, investors are pricing a lot of good news into the stock price.
Should you buy stock in GE Vernova right now?
Before you buy stock in GE Vernova, consider this:
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE Aerospace and GE Vernova. The Motley Fool has a disclosure policy.
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