GE Vernova (GEV)

Total return at 5 years: -10.5%/year = -10.8% appreciation + 0.4% dividend. The target price ($562) is ex-dividend; the $13 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($997) and the other below.

Today — expensive, no margin of safety: at $997 trades ~115.4% above its value discounted to today (~$463); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$288.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($997) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-0.6%/year) than we project (8.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$12.1 bn of owner earnings in year 5 (vs ~$18.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on NOPAT (EV/NOPAT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

GE Vernova is valued at the enterprise level on EV/NOPAT over after-tax operating income: cash (US$13.12 billion) and debt (US$2.857 billion) enter the bridge. Year 0 (TTM to 30-Jun-2026) carries reported net income of US$9,529M that includes a non-recurring gain of US$4,445M (the remeasurement of the remaining 50% of Prolec GE upon taking full control, plus the sale of the Proficy business) — the §7 case of a base year with money that does not come back: it is normalized by subtracting that amount from pre-tax income and applying the second quarter of 2026 effective rate in isolation (~30.1%, the only reading not distorted by the gain), which leaves normalized TTM net income of ≈ US$2,404M (a 5.8% margin) instead of the 23% the unadjusted reported figure would show. The release of 22-Jul-2026 (8-K, Item 2.02) includes the 2026 guidance —revenue US$45.5-46.5bn and an adjusted EBITDA margin of 12%-14%, against an adjusted EBITDA margin of only 10.5% in the first half of 2026— and anchors the start of the path (§5 R1 prior): the operating margin jumps from 4.35% (TTM) to ~8% in year 1, reflecting that guided ramp, and keeps expanding moderately to ~12.5% by year 5 as Power and Electrification gain weight against Wind (still at an operating loss). The TTM operating cash (OCF) margin is inflated by a working capital tailwind tied to order growth (+88% organic in the quarter) and customer advances on the backlog — that level is not extrapolated: the model brings it down gradually toward a more sustainable ~18%. Share repurchases are material (TTM buyback of US$5,406M against TTM FCF of US$12,438M, retention ≈53%) and are modeled with an explicit `sharesPath`, without accumulating cash in parallel.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $562 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $997, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $562 in 5 years plus $13 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $463. Against the current market price ($997), the margin of safety is -115.4% (trades above the maximum → a premium is paid) and the total return at that price would be -10.5% annually.

• Market multiple well above the band. On the normalized result, the entry multiple (157× EV/NOPAT) significantly exceeds the ceiling of the industrial archetype band (18×).
• Reported earnings deceptively cheap. The Prolec GE non-recurring gain makes the reported P/E look much lower than the normalized one.
• Not even the favorable scenario reaches the price. Even with the multiple at the ceiling of the band and margins at the optimistic extreme, the 5-year value remains below the market price.
• Quality business, disconnected price. The quality of the business is not in question; what does not add up is the price paid today for that quality.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (313%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Very high return on capital. The reduced invested capital base (~US$1,700M) against ramping operating profit yields a return well above the 10% bar.
• Cash generated by the business, ramping. TTM FCF (US$12,438M) is partly inflated by working capital, but the structural trend is one of real improvement.
• Reported earnings distorted by one-offs. TTM net income includes US$4,445M of non-recurring gains that will not repeat.
• Short track record as an independent company. Only two and a half years of history as a spun-off company limit historical comparability.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

GE Vernova monetizes three capital equipment businesses with long-term service: Power sells gas and nuclear turbines and charges for their contracted maintenance; Wind sells wind turbines and repowering; Electrification sells grid equipment (switchgear, transformers, high-voltage solutions). The contracted backlog (RPO) is the most relevant leading indicator: already-booked revenue that anchors the deceleration path before it shows up in the income statement.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Backlog as a leading driver. RPO +26% in 2025 anticipates revenue growth before it is recognized in the income statement.
• Electrification accelerating. Segment revenue +27.7% in 2025, with Prolec GE adding further scale in 2026.
• Wind contracting. Segment revenue -6.1% in 2025, with 2026 guidance for a low-double-digit organic decline.
• Concentration in data center demand. Much of the recent order momentum depends on a single demand driver (AI generation).

• Contracted backlog growing strongly. RPO went from US$119,000M to US$176,000M in just over a year, with orders +88% organically in the second quarter of 2026.
• Margin ramp backed by own guidance. The company raised its adjusted EBITDA margin guidance to 12%-14% for 2026, from 8.5% a year earlier.
• Wind structurally unprofitable. The Wind segment has posted operating losses since the spin-off, with no declared stabilization date.
• Exposure to shifting energy policy. The US Department of the Interior's pause on offshore wind leases already affected the timeline of a project underway.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)15.7x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 313% of ROIC
• ✓Value creation (ROIC − 10% bar)+87pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.1x
• ✓Float / working capitalFrees up cash $2.9 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Positive net cash. US$13,100M of cash against only US$2,857M of total debt.
• No refinancing pressure. Debt is small relative to cash and generated FCF.
• Voluntary pension plan contribution. Contributed US$500M to the GE Energy pension plan in the second quarter of 2026 to reduce future funding requirements.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Aggressive and growing buybacks. US$5,406M repurchased over the trailing twelve months, with ~53% FCF retention after dividend and buybacks.
• Young but fast-growing dividend. Initiated in 2024 at $0.25/quarter, doubled to $0.50/quarter by 2025-2026.
• No declared control block. The three largest proxy holders are passive institutions; there is no founder or family with a controlling stake.
• Active complementary M&A. Acquisition of the remaining 50% of Prolec GE and of Robotech Automation in 2026, financed with cash and moderate debt.

• No missing-buyers or motivated-sellers rationale applies: GE Vernova has broad analyst coverage and the market already recognizes the demand for generation and grid equipment
• TTM reported net income (US$9,529M) is inflated by a US$4,445M non-recurring gain from the Prolec GE remeasurement, which makes the market P/E look lower than it actually is on normalized earnings
• The price reflects a structural AI data center energy demand narrative that is real, but that the market is already paying for several years in advance

No margin of safety: the price already discounts a demanding scenario.. GE Vernova is not cheap: it trades at a multiple that no scenario within the disciplined industrial archetype band —not even the favorable one— sustains on today's normalized earnings.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -23%/year (-72% total): the margin of safety protects the downside. The bull (-5%/year, -21% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Fixed-price contracts. Cost overrun and penalty risk on long-cycle projects, with precedents in Wind.
• Growing Chinese competition. State-backed manufacturers are seeking markets outside their home countries in gas and grid equipment.
• Shifting energy policy. Tax credits and leases can be modified, even retroactively.
• Concentrated supply chain. Single-source inputs (semiconductors, rare earths) exposed to tariffs and trade tensions.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 97% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 8% at a multiple/growth of 19.7 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 1% (EBIT/EV) + ROIC 97% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -1% vs our 8%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -23%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: switching costs, efficient scale, intangibles, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -1%, within what we project (8%) — the story squares with the numbers.