Shares in power, wind, and electrification company GE Vernova (GEV 0.72%) rose by 12.8% in August, according to data provided by S&P Global Market Intelligence. The move was due to a combination of positive newsflow and underlying growth in the company's core business.
GE Vernova is starting to see balanced growth
The company combines the former power (essentially gas turbine equipment and services), wind (onshore and offshore wind turbines), and electrification (grid distribution, transmission, and power conversion) of General Electric. As such, it benefits from spending on renewable energy (wind turbines) and from the traditional energy source of natural gas.
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Key Data Points
The advent of investment in renewable energy has raised concerns over the long-term future of its power business. However, those concerns have abated this year as it's become clear that using gas as a transition fuel is critical to the clean energy trend.
GE Vernova raises guidance
Indeed, GE Vernova's power segment reported a 30% organic order growth in its gas power and hydropower equipment orders. The strength in the power and electrification businesses encouraged management to raise its full-year revenue guidance toward the high end of the $34 billion to $35 billion range given previously on the second-quarter earnings calls in late July.
In addition, the full-year adjusted earnings before interest depreciation, taxation, and amortization (EBITDA) margin is now expected to be 5% to 7% instead of the high end of the mid-single-digit guidance given previously. Finally, management upgraded its full-year free-cash-flow (FCF) guidance to a range of $1.3 billion to $1.7 billion from a previous range of $0.7 billion to $1.1 billion.
The guidance upgrade and the order growth are signs of good earnings momentum and that gas will remain part of the energy world for a long time to come.
Image source: Getty Images.
Wind derisked in August
In addition to the positive trends in power, GE Verona received some good news regarding a blade failure on the high-profile offshore Dogger Bank project in the U.K. A previous failure on a GE Vernova blade was put down to an installation failure, and in late August, Dogger Bank Wind Farm issued a press release stating that the more recent failure came down to an issue in the "commissioning process." Simply put, the turbine was fixed, leaving it vulnerable to damage due to high winds.
This conclusion is important because it eliminates the risk that the failure was due to a manufacturing issue on the blade -- a problem that could have proved costly to fix.
Image source: Getty Images.
Don't forget the AI angle
GE Vernova's improving power orders and wind margins are setting the company up for strong earnings growth. With the artificial intelligence (AI) revolution encouraging power spending, its positive trends could accelerate in the coming years.
