Siemens Energy raises long-term profitability target, a positive signal for the industry; Morgan Stanley: GE Vernova (GEV.US) earnings are expected to continue beating expectations in the coming years.

Morgan Stanley said in its latest research report released on November 12 that Siemens Energy's reported fourth-quarter results and latest medium- to long-term performance guidance send a positive signal for the long-term growth outlook of equipment giant GE Vernova (GEV.US). The bank believes that continued improvement in gas turbine profitability, strong demand for grid equipment, and the long-term growth potential of the aftermarket services business will drive GE Vernova's performance to further exceed market expectations in the coming years. Morgan Stanley maintained its "Overweight" rating on GE Vernova and a price target of US$1,350. Compared with the stock's closing price of US$808.24 on November 11, this price target implies potential upside of about 67%. Morgan Stanley analyst David Arcaro noted that with Siemens Energy publishing its latest medium-term performance guidance, investors' focus on large power equipment manufacturers such as GE Vernova is shifting toward 2030 performance targets. Siemens Energy's newly announced revenue growth and margin targets are broadly in line with investor expectations and further strengthen the bank's confidence in GE Vernova's long-term earnings outlook. Siemens Energy newly proposed that its group margin will reach 20% to 22% by 2030, which, based on the midpoint of the range, is 6 percentage points higher than its previous 2028 margin target. Morgan Stanley expects GE Vernova to achieve a similar magnitude of profitability improvement over the same period, with its EBITDA margin expected to rise from 22.9% in 2028 to 27.9% in 2030, an increase of 5 percentage points. It is worth noting that Siemens Energy emphasized that achieving the latest performance targets does not require further product price increases. This means that if prices for new orders continue to remain strong in the future, the company's actual earnings performance may still have room to further exceed targets. Morgan Stanley believes this trend also applies to GE Vernova. The company's previously announced 2028 performance targets may have been relatively conservative, and as high-margin orders are gradually converted into revenue, cost advantages from business scale expansion gradually emerge, and production efficiency continues to improve, both its power and electrification businesses are expected to achieve higher margins. Specifically, Morgan Stanley expects GE Vernova's power business margin to reach 23.1% in 2027, exceeding the company's 2028 target of 22% one year early; the electrification business margin is expected to reach 21.5% in 2027, close to its 2028 target of 22%. The continued improvement in the profitability of gas turbine orders is another important reason Morgan Stanley is bullish on GE Vernova. Siemens Energy disclosed that the margin on its new gas turbine equipment backlog for fiscal 2026 increased by about 14 percentage points, while the margin on orders for capacity already booked is even higher. The company's management also expects that sales prices for new equipment in fiscal 2027 will be further higher than fiscal 2026 levels. By comparison, GE Vernova previously disclosed that the margin on its relevant backlog increased by 11 percentage points in 2025 and expects the improvement in 2026 to significantly exceed that level. Morgan Stanley believes Siemens Energy's latest data provide a positive reference for assessing GE Vernova's fourth-quarter results, due to be announced in January next year. In addition, because GE Vernova has more high-priced orders in the U.S. market, the bank remains optimistic about its future profitability. However, the actual margin improvement will still depend on prior profitability levels and order mix. Morgan Stanley's current 2030 forecasts for GE Vernova are already significantly above Wall Street consensus. The bank expects the company's 2030 revenue to reach US$85.7 billion, about 8% above the consensus estimate of US$79.3 billion; EBITDA is expected to reach US$23.9 billion, about 17% above the market expectation of US$20.4 billion. At the same time, the bank expects GE Vernova's EBITDA margin at that time to reach 27.9%, above the market expectation of 25.8%. The power and electrification businesses will be the main drivers of the earnings beat, with Morgan Stanley's 2030 EBITDA forecasts for these two businesses about 15% and 16% above consensus, respectively. In addition to equipment sales, the gas turbine aftermarket services business is also expected to become an important growth driver for GE Vernova after 2030. Siemens Energy expects that by 2035, revenue from its gas turbine services business will more than double from current levels, with average annual growth of about 8%. The margin on newly signed service contracts is about 5 percentage points higher than the existing backlog. As more large gas turbines enter operation, related long-term service agreements will further enhance business profitability. GE Vernova has also previously said that by 2035, its gas turbine services business has a revenue growth opportunity of about US$10 billion. Morgan Stanley believes that the current large-scale deliveries of gas turbine equipment will create new growth space for the aftermarket services business in the future. This means that even if gas turbine equipment orders gradually return to normal levels in the mid-2030s, GE Vernova is still expected to achieve earnings growth through an expanding equipment maintenance, repair, and long-term services business. On the other hand, regarding recent market concerns triggered by SoftBank's writedown of power equipment assets, Morgan Stanley believes investors do not need to worry excessively about the impact on GE Vernova from an individual customer canceling orders. Previously, SoftBank announced the relevant asset writedown, triggering market speculation that it might cancel GE Vernova gas turbine capacity reservations and orders. Some investors estimated that the capacity involved could be about 4 gigawatts. However, relevant details remain unclear, and the specific reason for and scale of the capacity reservation cancellation have not been confirmed. Morgan Stanley noted that GE Vernova's contract protection clauses typically allow it to retain advance payments equivalent to 20% or more of the total equipment price if a customer cancels an order. Against the backdrop of continued strong demand for gas turbines, the company is also expected to be able to resell the released capacity to other customers at higher prices. Siemens Energy expects that by 2035, annual demand in the global gas turbine market will remain at 130 to 150 gigawatts. Morgan Stanley believes this further strengthens its confidence in GE Vernova's capacity sales prospects, and even if individual customers delay or cancel orders, the company is still expected to sell out its capacity. From a longer-term performance perspective, Morgan Stanley expects GE Vernova's revenue compound annual growth rate through 2035 to reach 9.6%, with the power business and electrification business growing at average annual rates of 12% and 9%, respectively. The company's adjusted EBITDA margin is expected to rise from 14% in 2026 to 26% in 2035, while free cash flow is expected to increase from about US$12.5 billion in 2026 to about US$17 billion in 2030. However, the bank also noted that delays in offshore wind project deliveries and slower-than-expected adoption of relevant software products by grid operators remain the main downside risks for GE Vernova in the future. Looking ahead, Morgan Stanley believes that Siemens Energy's latest performance guidance, gas turbine order pricing, and aftermarket services business prospects all provide positive references for GE Vernova's long-term growth. The market will next focus on GE Vernova's fourth-quarter results to be announced in January next year and its investor day expected to be held before summer 2027, when the company is expected to announce new 2030 performance targets.