Here’s why GE Vernova stock soared in August

Shares in electricity, wind and electrification company GE Vernova (GEV 0.11%) rose 12.8 percent in August, according to data from S&P Global Market Intelligence. The move was due to a combination of positive news flow and underlying growth in the company’s core business.

GE Vernova is starting to see balanced growth

The company combines General Electric’s previous energy (essentially gas turbine equipment and services), wind (onshore and offshore wind turbines) and electrification (grid distribution, transmission and power conversion) businesses. As such, it benefits from renewable energy spending (wind turbines) and the traditional natural gas energy source.

The emergence of investments in renewable energy has raised concerns about the long-term future of its energy business. However, those concerns have eased this year as it has become clear that using gas as a transition fuel is central to the clean energy trend.

GE Vernova raises guidance

Indeed, GE Vernova’s energy segment reported organic order growth of 30% in gas and hydropower equipment orders. Strength in the power and electrification businesses encouraged management to raise its full-year revenue guidance to the upper end of the $34 billion to $35 billion range previously given on second-quarter earnings calls from the end of July.

In addition, full-year adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin is now expected to be 5% to 7%, instead of the upper end of mid-single-digit guidance previous. Finally, management updated its free cash flow (FCF) guidance for the full year 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 update and 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.

The wind dropped in August

In addition to the positive power trends, GE Verona received some good news regarding a blade failure at the high-profile Dogger Bank offshore project in the UK. In August, Dogger Bank Wind Farm issued a press release stating that the more recent failure was down to a problem in the “commissioning process”. Simply put, the turbine was repaired, leaving it vulnerable to damage from high winds.

This conclusion is important because it eliminates the risk that the failure was due to a manufacturing problem with the blade — a problem that could have proved expensive 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 fueling energy spending, its positive trends may accelerate in the coming years.