A long-standing issue in the stock market is that when a particular industry is performing well, it attracts more competitors. This can lead to a decline in favorable conditions over time. This situation might occur for the power generation technology company GE Vernova, as noted by an analyst who monitors the stock.
Vernova’s performance has been nothing short of amazing. The stock has increased by more than four times since the company was separated from General Electric, now known as GE Aerospace, inApril 2024. Projections for 2028 earnings before interest, taxes, depreciation, and amortization have increased from under $5 billion to nearly $11 billion during this period.
Increased demand for electricity, partially driven by data centers supporting artificial intelligence, has led to higher prices for Vernova’s turbines and filled its order backlog for many years ahead. The challenge is that prosperous periods attract competition.
Baird analyst Ben KalloReduced GE Vernova’s stock rating on Friday to Hold from Buy, lowering his price estimate to $649 per share from $816. This is a significant reduction: the $167 difference represents roughly $45 billion in market value.
Kallo expresses concern over “possible excess supply” as rivals reveal plans to expand their production capabilities. Nearly anyone possessing turbine technology is now looking into entering the power generation sector, including Doosan,supersonic jet start-upBoom Technology and FTAI Aviation. Caterpillar, which has maintained a generator business for many years, is another company in the field.
“While we think the market is still tight (especially in the short term), we believe these announcements and concerns about oversupply are influencing sentiment toward a more optimistic outlook,” wrote Kallo. This suggests that the market, which now sees Vernova as a success, might reconsider its position.
Changes in market sentiment can affect valuation multiples—a concern Kallo has. Currently, GE Vernova is valued at approximately 20 times its projected 2027 EBITDA, whereas similar industrial stocks in the S&P 500 are trading closer to 16 times.
“Our long-term view of GE Vernova as a top player in both Power and Electrification, and considering GE Vernova as a key investment, remains the same, but we are now stepping back,” he wrote.
Vernova stock dropped on Friday following the cut. The shares reached a low of $621.11 and ended at $622.50, declining by 0.9%, whereas the S&P 500 and Dow Jones Industrial Average rose by 0.7% and 0.5%, respectively.
In general, 69% of analysts who follow GE Vernova stock have given it a Buy rating, as reported by FactSet. TheaverageBuy-rating ratio for stocks within the S&P 500 stands at approximately 55%. The typical analystprice targetFor Vernova stock, the price is approximately $753 per share.
Write to Al Root atallen.root@dowjones.com