GEV benefits from component shortages driving pricing power and margin expansion; gas capacity ramp supports growth despite balance sheet concerns.

We'll talk about where the margins are for company like GE Vernova in comparison.

Uh keep in mind that there are a lot of sections when it comes to these turbine engines. You've got uh the hot section, which is the slowest and most expensive, and it includes things like the compressor discs, casings, uh the fuel nau nozzles, the you know, aerosolizers.

I probably screwed up that word, but basically the little um in injectors that spray the fuel into the actual combustion component of a turbine engine. Uh you've got uh the rotors, the generators, heat recovery, cooling.

There's a lot. GE Vernova says all of those components are a limiting factor, not just the blades and veins. So, there's a little bit of a clash between the two.

Whereas, GE Vernova's down about 2.4% on this news.

Again, GE Vernova disagrees with that. They say everything is facing a manufacturing uh capacity restraint. So, it's not just having those components, it's actually being able to assemble it all together, and that's a constraint.

Now, in fairness, there is a real shortage going on and and that's why there's pricing power to company like GE Vernova. So, their uh margins on the power segment, which is where the turbines sit at GE Vernova, uh are up about 240 basis points to 2.4 percentage points uh just over the last year.

Their power segment is doing very well and they don't say it's because of data centers, but we expect it's due to data centers because they say from heavy-duty gas turbines. They also mention that there has been a decrease at the offshore wind revenue component, which is probably because Trump calls them whale killers.

Topic for a different video, really. But anyway, their gross profit is up 27.8% overall and their total revenues are up 22%, so they're growing their gross profit more. And because these turbines are higher margin for the individual company, expectations are that GE Vernova is going to be able to boost their entire net margins, and that can actually help their valuation out.

If I jump on over, for example, to the Reinvest stock tab, so this is sort of our terminal tab on uh let me get logged in again here. I always seem to get logged out right in the middle of a video.

It's like, "It's okay." [laughter] Uh but um let's go over to the GE Vernova, which is going to be the GEV tab, and then once we're in over here, you can see a couple things. First, we've got a fair value upside target of around $1,231.

This assumes that their margin continues to expand. Obviously, if this is just a cyclical business and their margin expansion is temporary or more competitors come in, then that's a downside.

Remember, Elon famously called lithium the limiting factor and then said, "Hey, they're going to get into the lithium refining as well at the Raptor facility." And then they did, but then lithium prices tanked.

So, people are now wondering, are blades and veins going to get really cheap now in a few years, right? So, it's something to keep in mind.

But, if we look at the insights over here, we can see the gas capacity ramp accelerating from 3 GW at GE Vernova to 5 GW, which, you know, that's that's a big increase. That's more than a 50% increase.

That is a 67% increase in in output for these is is not only margin accretive, but revenue accretive to GE Vernova.

So, a lot of people are excited about this and they see the the short-term sell-off. I don't have any exposure to to this company, so you know, it's not like I'm trying to shill it.

But, um people are very excited about what this could do for their margins over the long term, plus what they're calling integrated solutions and solid-state transformers. But, anyway, uh if you then jump on over to GE Vernova's uh cash flow, their cash flow is actually fantastic.

Their balance sheet's not that great, but if you look at their cash flow on $12 billion of free cash flow forecast, they've got like a 5% cash flow yield, free cash flow yield. Pretty dang good. Not bad.