Is GE Vernova (GEV) a good spin-off stock to buy?

By:
on Apr 2, 2024
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  • GE Vernova will start trading in New York on Tuesday.
  • The company houses General Electric’s energy business.
  • It faces major headwinds because of its offshore wind business.

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GE Vernova (NYSE: GE) stock price will be in the spotlight on Tuesday as the company starts trading in New York. This event marks a new phase for General Electric, which was once the biggest company in the world.

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GE vs GEHC stock

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What is GE Vernova?

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GE has been going through a major strategy shift in the past few years. As part of this transition, the company’s management decided that separating it into three business units was the best option.

As a result, the company separated its healthcare business into a single unit known as GE Healthcare. Since going public in 2022, the GE Healthcare stock price has risen by over 50% while GE has jumped by over 160% in the same period.

GE Vernova, which houses the company’s energy business, will be the next to go public on Tuesday at a valuation of about $35 billion.

For starters, GE Vernova is a big company that manufactures engines in the energy sector. It builds gas engines, wind turbines, nuclear energy engines, and hydro engines. It also sells software used by power plants around the world.

GE Vernova is made up of GE’s power and renewable energy business. In 2023, the renewable energy division brought in $15 billion in revenue, up from $12.9 billion in the previous year. Its power division’s revenue had $17.7 billion in revenue, up from $16.2 billion a year earlier.

GE Vernova faces substantial competition in all industries. In its wind energy business, it competes with the likes of Siemens Energy and Vestas Wind Systems. It also competes with firms like Mitsubishi Heavy Industries, Rolls-Royce, and MAN.

However, the company’s turnaround has seen it gain market share in all its industries. In its most recent earnings call, the company said that its orders jumped by 50% to $23 billion. Its power orders jumped by 4% while its grid business backlog more than doubled to over $12 billion.

A key challenge for GE Vernova is its offshore wind business, which is going through a major slowdown as high-interest rates lead to slow business growth and project cancellations. In the most recent quarter, the division had a $1.1 billion loss as the industry goes through a reset. Offshore wind represents about 20% of its total revenue.

Is GE Vernova a good stock?

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Given the choice between GE and GE Vernova, I would select GE, a company that is in a straightforward business. GE Aerospace manufactures and sells engines for the civil and defence sectors, an industry that is seeing unprecedented demand.

GE Aerospace also operates in an industry that is dominated by just a few companies, including Safran and Rolls-Royce.

GE Vernova is a trickier company, especially because of its offshore wind business. Also, I have concerns that the company could turn out to be like Siemens Energy, which was bailed out by the German government in 2023.

In the long-term, I believe that GE Vernova will do well because of the rising demand for energy and power around the world. However, in the near term, I expect the company to go through headwinds, which will likely affect its stock price.

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