GE Vernova outlook upgraded to positive at S&P on rising profitability

Investing.com -- S&P Global Ratings has revised its outlook for GE Vernova Inc. to positive from stable, citing rapidly improving profitability. The company’s ’BBB-’ rating has been affirmed. GE Vernova has significantly improved its profitability, with S&P Global Ratings-adjusted EBITDA margins increasing to approximately 6.4% from around 1.1% between the end of 2023 and the end of the first quarter of 2025.

The positive outlook reflects expectations of strong demand for power in the coming years to support data centers, which will benefit GE Vernova. S&P Global Ratings expects GE Vernova’s adjusted EBITDA margins to approach 10% over the next 12-24 months. The company has also set an aggressive target to reach 14% adjusted EBITDA margins by 2028.

In 2024, GE Vernova’s power business saw a 2.6% increase in its services backlog, offset by a decline in equipment backlog due to the sale of its steam original equipment business. The company’s wind business backlog has declined significantly, largely due to the company’s selectiveness in project underwriting and the rolling off of its offshore backlog. No new offshore wind projects have been booked for over three years.

The company’s electrification segment, on the other hand, saw a more than 40% increase in backlog in 2024. The segment is expected to see margin growth due to strong demand and the company’s lean initiatives, with margins projected to increase nearly 300 basis points in 2025.

S&P Global Commodity Insights predicts a significant increase in data-center-driven electricity demand over the next decade, which should benefit GE Vernova’s conventional business. Despite potential efficiency breakthroughs in AI platforms, the demand for AI infrastructure investments is expected to continue.

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As of March 31, 2025, GE Vernova had approximately $8 billion in cash and cash equivalents, along with an undrawn $3 billion revolving credit facility. The company also recently initiated a quarterly dividend of $0.25 per share and a $6 billion share repurchase authorization. Despite these initiatives, S&P Global Ratings expects GE Vernova to manage its balance sheet prudently as it continues to improve profitability.

The positive outlook for GE Vernova is contingent on the company reaching 9%-10% adjusted EBITDA margins over the next 12-24 months. However, the outlook could be revised back to stable if profitability improvement is weaker than anticipated or if the company generates a significant free operating cash flow deficit over the next two years. On the other hand, an upgrade could occur if GE Vernova continues to improve profitability over a sustained period, with specific conditions including adjusted EBITDA margins of about 10%, sustained positive free operating cash flow, and a track record of conservative financial management.

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