Barclays sees ‘undiscovered’ value in Vernova, reiterates Overweight on General Electric

© Reuters.

Barclays reiterated an Overweight rating on General Electric Company (NYSE:GE) and raised their 12-month price target on the stock to $125.00 (From $115.00) after diving deeper into the company’s green energy firm, GE Vernova.

Vernova is one of the global leaders in Power equipment markets, ranking just behind SIE Energy in sales terms. The company’s renewable energy wing comprises 50% of GE sales and is due to be spun off in early 2024.

The firm said most investors place a very low valuation to Vernova. However, it thinks this perspective has ample room to be revised upwards. Barclays now values Vernova at ~0.9x ’24 sales, which implies a ~15.5x / ~11x ’24 / ’25 EV/EBITDA multiple. This implies a fair value of $27/share inside GE today, leading to Barclays' overall price target on GE of $152.00.

The firm wrote in a note, “Vernova is one of the global leaders in Power equipment markets, ranking just behind SIE Energy in sales terms. Its main end-market exposures screen quite well in our BALANCE end-market framework, with Renewable Energy (33% of Vernova sales) being Below Trend, and offering Conceptual / Secular growth, and the Power Grid market (11% of Vernova sales) has become popular again with investors. We estimate Vernova’s organic sales growth will exceed the MI average in ’24, after underperforming since 2021, with likely out-growth over the medium-term (we est. a +5% organic sales CAGR over 2024-2026). There are relatively few liquid ways for US investors to play the ‘energy transition’ in power generation, aside from Vernova.”

Barclays estimates that Vernova’s overall margins will reach ~5% in 2025, after -3.5% in ’22. In Renewables, Barclays estimates EBIT margins reach 3% in 2025 after -17% in 2022, with Offshore losses narrowing, Grid profits expanding, and Onshore recovering.

Shares of GE are up 1.11% in afternoon trading on Wednesday.