Brett Castelli on GE Vernova (GEV)

(upbeat music) Hi y'all, I'm John Ratanti, a portfolio manager at Bastion Fiduciary and one of the hosts of Rebellious Allocations, which is our Bastion Fiduciary podcast. The date is February 17th, 2026. Happy Marty Grigal, today I'm joined by Brett Castelli for a business deep dive into GE Vernova, ticker GEV. GE Vernova is a stock that I own in the industrials and infrastructure portfolio that I manage at Bastion Fiduciary. Brett is a senior equity analyst covering energy utilities and some other industrial related businesses at Morningstar and there's a lot of overlap between his coverage universe and the high quality universe I focus on at Bastion. Brett, welcome to the show. Thanks Brett. So before we jump into the questions, I wanna give some very high level companies to statistics. So listeners get a gauge for the size and scale of GE Vernova's business. GE Vernova has a market cap of about 215 billion and maintains a net cash position even after issuing its first debt as a public company to help fund a recent acquisition. So its enterprise value is less than its market cap. In 2025 GE Vernova generated revenue of 38 billion and pre-tax income of 2.8 billion for a pre-tax profit margin of 7.4%. I'm using pre-tax profit here instead of net income because it looks like GE Vernova had a $2 billion tax benefit below the earnings before tax line. That $2 billion is non-cash so it is subtracted on the cash flow statement. So it does not contribute to free cash flow. As far as cash flow is concerned in 2025 GE Vernova generated cash flow from operations of over 4.9 billion and spent almost 1.3 billion on catbacks and internal use software. So its free cash flow was 3.71 billion which is a free cash flow margin of nearly 10%. And that free cash flow margin is up from around 5% in 2024. And maybe I'll just also note that GE Vernova's free cash flow grew 118% in 2025. So this seems to be a business that is both growing and materially expanding margins at the same time. So on to the questions. Brett, can you give us a brief history on GE Vernova and any important milestone or inflections in the company's history? Yeah, so GE Vernova in its current state was spun off from the broader General Electric Family in early 2024. Listeners may recall that GE underwent this split into three separate companies. So a healthcare division, GE Vernova, which is more the power division, and then GE Aerospace. The GE Vernova piece of what was formerly General Electric had been around for quite some time. Traces its legacy back to the Thomas Edison days. And so GE has been a leader in the power generation space for decades. I guess the other thing to highlight here is just the 180 degree spin since the spin off in terms of the end markets. So this was, at the time of the spin or leading up to the spin, Vernova's business was sort of an afterthought within the broader GE portfolio. This was not a strong performer. It was roughly around break even at spin. And you look at it today and the outlook. And obviously it's very different. And in large part due to the changing end markets, strengthening end markets, which I know we'll talk about. Definitely, definitely. So what does GE Vernova do? Can you give us a breakdown of the business model, the different business segments? And maybe a breakdown of the revenue percentage coming from the US versus outside of the US. Yeah. So in short, GE Vernova is a leading provider of power generation equipment. Their equipment is installed in roughly 25% of the world's power plants. So they are the behemoth within when you're talking about power generation. The company is organized into three segments. So first is the power business, which consists of gas powers. It's the biggest piece there. But then they also have a hydro and nuclear and steam business within that power segment. The second segment is wind, which consists of their onshore and offshore wind business. And then the third segment is electrification, which I refer to as sort of grid equipment and things like transformers and switch gear. And in terms of the revenue mix geographically, this is a company that is very global. So in 2025, it was roughly 50/50 between the US and rest of the world from revenue split. Perfect. I'd like to go deeper into those different segments. You just talked about, but you covered utilities in the past. So can you please discuss the electrical grid in the US and the drivers of electricity demand? I believe low growth in the US was roughly flat for like a 15 or even 20 year period, but is now projected to grow at a much faster rate over the next five or 10 years. So please discuss what you think are the main drivers of this new demand growth. Yes. So you're correct, John. If you think about it from roughly the mid 2000s up until about 2020, the low growth in the US or electricity demand was essentially flat. What that led to was low power prices and very little new generation capacity coming online, particularly base load generation capacity. So things like nuclear natural gas coal. You really were retiring some of some coal capacity, even some nuclear capacity and replacing it with renewables during that low load growth, demand environment. Fast forward though to today. And again, it's everything's been flipped on its head. Now we've got estimates vary, but somewhere in the order of 2% per year electricity demand growth, which may not sound like much. But when you're talking about these large numbers, it's actually quite significant. And again, something we haven't seen for 20 years. So that 2% is driven by host of things. It's not just AI. It's AI data centers, as well as the reshoring that we've seen in the US in terms of the manufacturing base. And to a lesser extent, things like EVs and heat pumps as well. So you mentioned AI there. What rate do you think electricity demand growth would be growing the US absent AI? So in other words, how much in your opinion is the build out of these AI data centers contributing to the low growth projections? So estimates vary here as well. But I think a safe way to think about it is a slight majority. So over 50% of that electricity demand growth is coming from AI. And it's not just that AI is a material driver. It's also that in utilities and in electricity, you're used to things that are multi-decade drivers. So things like EVs, or if you go back to air conditioning and things that really drove electricity demand, these were things that utilities could see coming and they were multi-decade in nature. AI is fundamentally different. I mean, this is two, three years ago, we weren't really talking about it now. All of a sudden, it's a massive driver. And the expectations are as wide as you can think in terms of how big this gets long term. So AI-- that's why there's a lot of these power stocks have become very sensitive to this AI theme. Because it's A, a large driver, but B, it's come on so quickly. And the range of expectations are very wide. That's a really good point to bring up that range of outcomes. Yeah. So let's get into the segments. Please discuss GE vernovas power business. What is it selling? Who is it selling it to? What are the drivers of demand? And anything else you think is important to discuss in an overview of the power segment? So the power business, again, consists of gas power, hydro, nuclear, and steam as well. But I'm really going to focus my comments on gas power because that's roughly 80% of segment revenue. And it's going to be even higher than that as we look forward. So within gas power, they are selling a gas turbine. This is the critical piece of equipment within a gas power plant. And in terms of who they're selling it to, the customers would typically be utilities for power plant project developers, maybe even here recently, hyper scalers are joining sort of that customer group as well. But in general, you can think of utilities and power plant project developers as the typical customer. And in terms of demand drivers, it really comes down to electricity to me, anger. So as I mentioned, under the old paradigm of flat load growth, we didn't need as many new base load power plants or gas power plants. And now that we have load growth returning, you're seeing a renewed focus on some of these technologies that were kind of left for dead. Yeah, so what is the competitive landscape like in power? Do you have any idea of what Gever know what market share is and who is G. E. Verna was main competitors. Sure. So within gas power, the market's kind of bifurcated between smaller turbines and larger turbines. I'll focus on smaller turbines for just a minute. So smaller turbines, these are traditionally would not be used for a large scale power plant. These would be more for powering a petrochemical facility or some industrial facility, maybe along the Gulf Coast or something like that. So G. E. Verna would compete there, but the competitive landscape is more fragmented that competing again, those smaller gas turbines, which have received a lot of interest here recently with AI. But let's focus our comments on the large scale gas turbines. There, it's much more concentrated. So there's really three main players in the large scale gas turbine market, G. E. Verna over same energy and then Mitsubishi would be the three that control somewhere 80 to 90% of that market. If you think about G. E. Verna over this market share, those three are roughly on par with each other in terms of capacity, but I would give a slight edge to Verna over on capacity. And particularly when you look into the U.S. market in particular, historically the company has maybe even punched above the tweet in that market with market share in the range of maybe 50% for these gas turbines. Impressive. So these large gas turbines, sometimes referred to as combined cycle gas turbines, how do they work and maybe how does a big net gas turbine compare to other energy or fuel sources? Yeah. And let me take a step back and really distinguish, there's sort of two types of natural gas power plants. There's one, a combined cycle power plant, which you mentioned, John. So that is a base load power plant. When I say base load, I mean, designed to run around the clock 24/7, right? 24/7. Yep. That would be a combined cycle power plant. That's one type of natural gas power plant. The other type is a peaking facility or a simple cycle. And so Verna oversells into both markets, but let's focus on combined cycle. There your input is natural gas and your output is electricity. And so it's really very analogous to an airplane, an airplane engine that's basically strapped to the ground and again, generating electricity. So a combined cycle, the key difference between that and other technologies is it would be within the base load technology group. So if you think about a nuclear power plant, that's also running base load and coal as well within the base load power plant grouping. On contrast, wind and solar would be more intermittent. And so these are not base load cannot run around the clock. They're running when the wind is blowing or when the sun is shining. And again, within the current context, what we've really seen is a renewed interest in those base load power generation technologies. Given all the interest in AI right now, when it comes to powering AI data centers, which fuel source is best positioned? Yeah, so if we just take them one by one, and let's leave coal out because coal in terms of new capacity, I think is generally off the table. But if we focus on nuclear first, so nuclear has some strong attributes. It's base load. It runs roughly 90% of the time. It's carbon free as well, which is important to some of these large companies as you can imagine. But the key drawback with nuclear is it's a 10 year from the time you start to the time you place the plant in service. It's a 10 year construction cycle. So and these these tech companies need the power, you know, in the next couple of years. So so nuclear is challenging at meeting the the medium term to begin. Then let's go to wind and solar wind and solar has some strong attributes as well. They are much quicker to build than nuclear. They can be built in a year or two. They're carbon free as well. But the challenge is they're not 24/7 and any data center developer needs the power reliably. And so what you're really left with when you kind of unpack the potential fuel sources is natural gas is sort of there is no alternative. And so that's why these natural gas firms like a GE Verova within their gas power business in particular is so well positioned within the correct market context because natural gas is is the key winner from this AI power demand. Seems like yeah. How many of these large natural gas turbines would it take to power a one gigawatt AI factory? Yeah. So if you think about an AI training data center factory, the rough utilization of that would be in the 80% range based on the statistics we have. And if you think about a natural gas power plant, they typically run about 60% of the time, but they can run up upwards of 80% of the time. So it's roughly a one to one correlation in terms of one gigawatt data center to a one gigawatt natural gas power plant. Maybe you want to to be safe. Maybe you want to go a little bit over one gigawatt, but that's a rough conversion for listeners to have in mind. Let's shift to supply. We talked a lot about demand there. Why is there such a long wait list for these big not-nat gas turbines? I think GE Verova said they're wait listed out to 2029 and they even have some slot reservations for 2030. So why is there such a long wait list? So it comes out of two things. One is these are complex highly engineered pieces of equipment, large pieces of equipment. So these are not built overnight. That's one thing. The second thing is just supply demand. Demand has shot through the roof seemingly overnight and supply it takes time to catch up. And so again, these companies were generally reducing capacity over the last decade or so. And so to increase capacity, it just takes time. So supply will catch up to demand, but in this current market environment, you know, for Nova and its competitors are very well positioned from a pricing perspective, where they have a lot of pricing power as demand outstrips supply. Yeah, absolutely. Excellent discussion of their power segment. Let's move on to their electrification business, which you're calling their their grid equipment business. What are they selling there? Who are they selling it to? And what are the drivers of demand there? Yeah, so the critical or electrification business encompasses many things. The key piece of equipment there, I would say would be things like transformers. So stepping up voltages from low voltage to high voltage, you can think of it as sort of the on ramp or off ramp of a highway. When you build a new power plant, you need a transformer next to it to then help that electricity get stepped up and and flow onto the the broader electrical grid. It so it sells transformers switch gear has a software business within there as well. But these are again, you know, your heavy duty electrical equipment that it's selling there, in terms of who it's selling to, again, typically utilities would be a large customer there, but also demand users here, because you would need some of this equipment at the site of a data center or things like that. So they're going to be selling both on the supply side but also the demand side and the demand drivers very similar in terms of what I talked about on the power business where rising electricity demand certainly helps this segment. But here you do have a bit of just replacement demand of some less equipment as well, you know, the electrical grid in the US and elsewhere is aging. And so some of this equipment just needs to replace, you know, every few decades and we're kind of at that point. Yeah, so it's a combination of like upgrading as well as build out exactly. What's the competitive landscape like in electrification? Who are the main competitors and do you have any market share numbers for G. Evernoma? Yeah, so I don't have any market share numbers, but the the punchline here is I talked about on the heavy duty gas turbine side. That is very much like an allegopoly with these three sort of competitors electrification is more fragmented broadly speaking. K competitors include firms like Hitachi, Siemens Energy, ABB Schneider Electric companies that play within that broad electoral equipment space. So again, here I think we need to demand has been robust, but this is where you need to need to watch supply additions, classy additions on the gas turbine side, but even maybe more closely on the electrification side because because of the fragmented nature, they can come on relatively quickly. Yeah, that's a good point. What products does G. Evernoma sell in its wind segment? So the wind business consists of two main products. One would be the onshore wind turbine business and then secondly would be the offshore wind turbine business. Talk about the dynamics of this wind turbine business. Why is this is this business losing money for G. Evernoma? And do you think it's capable of turning up profit and generating returns on invested capital above the cost of capital at some point in the future? Yeah, so we talked about how strong demand is for the gas turbine business at present. When does the flip side when demand is relatively weak right now? And if you think if you think about it, just putting some numbers around it. In 2025, we installed less than 50% of what we installed in 2020. So, Demand's off about 50% in terms of US onshore wind demand and based on the company's commentary and listening to developers, the sense that I get is no one expects a dramatic rebound here in the near-to-medium term in terms of that demand. Really what people are watching is a potential change in the administration here in a couple of years and maybe that re-kicks and kick starts some things on the U.S. onshore wind side. And that's a challenge for the profitability, right? Whenever you're running at lower volumes, Demand not as strong, your profitability is going to be less. Then on the offshore side, the offshore side is somewhat similar but somewhat different. Here, there was a lot of optimism a few years ago on offshore wind and Vernova signed up a few projects for host of reasons, things have changed drastically in that market. And so with current situation for Ge-Evrenova in the offshore wind market is really just winding down the projects that they have signed up to do. There's two remaining projects, one in the U.S., one in the U.K. That they have in their backlog and they're just looking to deliver on those and wind down that backlog. I don't get the sense that they're looking to take on any new offshore wind business. That's a corner of the market that may be more so than any other space, particularly in the U.S. has been impacted by the current administration. And so again, I think you're sort of winding down the existing backlog and waiting to see if there's any policy change that may help that business longer term. Do you have any outlook on the longer term? Status of wind turbines. And what do you think Ge-Evrenova will do with this business? Do you think they'll hold on to it? I guess is my question. Yeah, that's becoming more of a question, I think. If you step back and think about the key drivers for the company, wind is really, we talked about three segments. Wind is the distant third in terms of a corner of importance. So it's about 10% of, if you look at it, 28 of the companies revenue. But the margins on it are way below corporate average. So if you think about it on a value basis, it's probably in the neighborhood of maybe 5% of the company's evaluation is within this wind business as you look out later this decade. So it's becoming increasingly less important. And as you think about the outlook, on one hand, we've got rising power demand. And so we need sort of an all the above approach. And wind does very well in certain parts of the country and parts of the world. If you think about that, the code is down to taxes. Wind is the cheapest electricity source. And so wind is a part of the future here. It's just do we do we get back to again, the levels of past peaks in the wind business? You know, I don't necessarily see that. And in addition, you've got the current tax credits are slated to expire around 2030 that also creates a uncertainty in that market. Yeah. Yeah. And not only are there parts of the country where wind is the most affordable, but you also mentioned that it's the quickest to bring online renewables are much quicker to bring online than exactly. That gas and that gas is quicker to bring online than than nuclear as you as you said. So we've talked about the different segments, but GE Renovale also breaks out revenue between equipment and services. What is the significance of this distinction and which do you expect to grow faster over time? Yeah. So this is a critical point to understand. In terms of the revenue mix between equipment and services, it's about 50 50 slightly more weighted towards equipment than services, but about 50 50 in terms of the revenue mix. But if you unpack that by segment, it's most of that service as business is within the power segment. And so that's critical for investors to understand in just to distinguish between the two. So equipment would be if we take a gas power plant example, that would be the upfront sale of the equipment. When the equipment is installed, Renovale recognizing the revenue associated with that initial sale. The services though would come over the life of that power plant being an operation. So they might have a long-term service contract where Verovah is servicing that. They might have aftermarket parts agreements with that. And so again, equipment is a two to three year revenue recognition for a specific gas power plant services as a multi-decade revenue opportunity for a gas power plant. And when you unpack it by margin, if you think about in 2025, the power business margin on the equipment side was right around break even. But on the services side, it was in the low to mid 20% range. Wow. And so really, and that's what you see across most companies is right. Services is going to be a higher margin than the upfront equipment. Sort of analogous to the razor-raiser blade model. We hear so much about investing. That's similar here. And so when you really unpack what's important in terms of defining the company's evaluation, it's really around what does that equipment margin? What do you assume in your long-term model for that equipment margin? Because with the current market pricing power that Vernovah has, that equipment margin is going to go from break even today last year to something in the range of 20% here by the late decade, which again is something that we haven't seen equipment margins that high for decades in this business. And so that's the biggest question. I think the biggest single biggest variable for Vernovah's stock is that long-term power equipment margin because that moves around a lot depending on the cycle and the main environment. And contrast services is higher margin and there's less variability in that margin. Such a great answer. I interview a lot of investors and portfolio managers. And they always tell me like the most important thing for being a good investor is to identify the one or two or three key drivers of intrinsic value at a business. And that's what you just did here. You said the key variable is the equipment margin because it's going from zero to 20 potentially, but it's also cyclical over time. And so trying to nail that down is that key variable. It's an important driver of intrinsic value. So thank you for that. I also remember at the G. Vernovah investor day just a few months ago, you talked about services being a multi-decade revenue stream. And G. Vernovah's CEO Scott Strazik said that that service stream creates an incredible financial and new-ity stream for us for a very long time. That was actually, quote, so very similar to what you just said. Let's move on to Morningstar's known for great analysis, but for their modes and their management framework. So you rate G. Vernovah's having a narrow mode. What are the sources of the mode in your opinion? Yeah. So there's really two sources that we identify. One would be intangible assets associated with the fact that these are highly complex, highly engineered gas turbines that they're making. So you're not really getting particularly at the heavy duty into the market. New entrants, you know, this has been an allegopoly for many years. So that's one source of the mode is just the highly complex nature of manufacturing these. And the second thing is that services business that we just talked about. I mean, the services business is great because it provides that a new-ity stream of, hey, let's get our equipment installed. And then let's make our money on the aftermarket parts and services opportunity where once it's installed, they're highly likely to go with a Vernovah part or Vernovah services contract associated with that. So it's that switching cost component that comes with that services revenue. I'm just curious why not a wider mode given some of its businesses is a global allegopoly, like you said, in that large natural gas turbine business. What would you have to see to give you more conviction or confidence that G. Evernova may have a wider mode? Yeah, it's a fair question, particularly as you think about the levels of profitability that this company is going to generate here for the foreseeable future. I think though it's important to keep in mind history, right? This was a business that if we back up just a few years, again, was not thought of well under the broader G umbrella. And we talked about break even profitability just a few years ago. And so when we look at modes, it's always important to distinguish what's a strengthening end market versus a true long-term mode. And Vernovah has some of both no question. But to be frank, right, in the current environment where there's such a need for new power generation, all companies are generating it within the space are generating really robust margins. Even companies that probably don't have a moat at the lower end of the market. Right? And so you have to marry the fundamental moat with also the end market context. And so, yes, within the context of current backdrop, Vernovah is going to look like a wide moat company. but the question is is through the cycles, the ups and downs of the cycles, how does that look in the next downturn, right? They're going to have a higher services revenue mix as you talked about, you know, as that services revenue continues to grow. But there's, you know, where does that equipment margin go? You're seeing entrance comment, try to come into this space, we'll see how successful they are longterm. So, you know, there's puts and takes here, but clearly over, you know, again, next five plus years, this is going to be a business that generates very high levels of profitability and very high returns on domestic capital. - Yeah, yeah, that context is so important. I give a lot of guest lectures at universities and I help college students with their stock pitches and give them feedback. And, you know, at that level, a lot of times, you'll see them model, whatever margins were historically, they just model forward. And, you know, I'll ask them why to do that and they just say, well, that's the historical average. And so I try to instill in them, you know, you have to think about the context in a lot of situations. If the context today the same or similar that will allow them whatever company it is to generate margins similar to what they did historically, or maybe the context is worse, or maybe the context is better. And so there could be, you know, higher future margins going for it, but that context piece that you just mentioned is really important. So earlier in the conversation, you said that, you know, basic supply demand dynamics for the natural gas turbine business means that Givernova has a lot of pricing power right now. What are the drivers of that pricing power? Is it just the supply demand imbalance? And how sustainable do you think this pricing power is? - It really comes back to that fundamental demand supply imbalance that we currently have. And the fact that again, when you look at the competing technologies for Nova and their competitors are kind of looking around and going, you know, there's no alternative to natural gas. So they can keep taking price up. I think that's a piece of it. The other piece is, you know, we've, there's been cycles to this business in the past and boom, and bust cycles. And I think the management teams, particularly at the early stage of this AI cycle were cautious and weren't going to expand capacity day one. And I think some of that has allowed that pricing power to persist a bit longer than maybe it was, you know, whenever, in past cycles, whenever they were eager to expand capacity at the moment of increased demand. And so some of that supply discipline, particularly amongst the big three here, you know, is in their favor in terms of, hey, we're going to be measured about how much we expand capacity because we know that, you know, who knows when, but, you know, it will happen at some point that demand and supply will come back in the balance and, you know, we don't want to expand capacity too much. - It's almost like they learned some lessons from past cycles. - Right. - Yeah. - And they're approaching it cautiously, yeah. Some of the numbers guy and G.E. Vernova has provided three year guidance through 2028 that calls for organic revenue to grow with a low teens cager to reach $56 billion for adjusted EBITDA margins to expand to 20%. And just for reference, that's up from 5.8% in 2024 and up from 8.4% in 2025. And then that guidance also assumes that they generate cumulative free cash flow of at least $24 billion over the next three years at a free cash flow conversion of 100%. So what do you think about this medium term guidance? And then maybe what levels of revenue growth, margin expansion and EPS growth, are you modeling in your base case over the next five years? - And just for perspective, I think this is the third 2028 outlook that the company has given since the April 2024 spin. So in each time they've kept raising the bar, I think finally, this time our numbers are pretty close to there. So we're outpacing them a little bit. So on the revenue side, I think you mentioned 56 billion, we're at 59 billion in 2028. On the margin side or EBIT down margins are just to touch above what the company is saying. So I think 20% is sort of what they have out there. We're at 20 and a half or so on the EBIT down margin. And so that flows through on the EPS side as well with us being slightly above on the EPS side relative to their targets. The other thing that would point out here, John, is this is a business that is a bit more long cycle. And what I mean by that is, you know, they take an order for a gas turbine today, they deliver that and recognize that in revenue out in 29, 2030 maybe. So 2028 for this business is really tomorrow. I mean, this is stuff that they've already sold generally speaking. So they know what the pricing is. They have an idea of what the margin is. And so that 2028 number at this point, shouldn't we think there's modest upside. But really the story is around 29, 2030, right? And where do things go beyond? Because this is such a long cycle business. People are really focused on, OK, you know, how where do margins go? And yeah, 2030 and beyond. Because 2030 is not that far away in this business. In this business, that's a really good point. Yeah. So before we move on, let's just quickly review. What do you think are the drivers of this revenue growth over the next three to five years? And then what are the main drivers of that margin expansion? Number one, revenue and margin expansion driver would be the power business. So both higher pricing, but also higher shipments. So the company is expanding capacity. And so there's shipments beginning in the second half of this year will inflect higher up to 20 kick a lots of year and even a little bit beyond with some of the recent additions. So the volume and pricing within the power business. And then within the electrification business as well, that's the other fast growing business here. And there it's not as much price, but very strong volume. And so you're just getting fixed cost leverage on that higher volume, higher revenues. And that's allowing that operating margin expansion. Excellent. Roughly speaking, what level of return on an invested capital do you think GE Vernova can generate over the next five years? Yeah, it's kind of nutty if you look at our model. I mean, it's an excess of 50%, 50%. And again, when you're raising prices by this much, that's the strongest thing in terms of enhancing your return on the Vestic Apple. Because you don't have to spend new catbacks. You don't have to add salespeople. It all flows through with no ink or alcohol cost. So the returns on Vestic Apple are going to be very strong. The one caveat I would mention here, John, is the company took a number of write downs, particularly as it relates to the Austin deal that they did within their power business last decade. So our denominator within that Return on Vestic capital has taken those write downs out. So that's lowering their denominator or enhancing the Return on Vestic Capital number relative to if we added that back. But anyway, slice it, it's a strong Returns outlook. Yeah, I appreciate you calling out both the numerator and the denominator there. Let's move on to management. So you rate G. E. Vernava's management as standard. Yeah, we really look at three things in Morningstar in terms of a capital allocation rating. First, being the balance sheet and making sure the balance sheet is in strong position. Clearly, Vernava is in a very strong position. They're given the low levels of debt and also the strong cash flow generation. Secondarily, we look at Returns of Shareholders, so dividends, share buybacks. Here, we think the strategy is appropriate. They have a modest dividend have been returning cash to shareholders via share buybacks. And then the final thing we look at is investments both organic and inorganic. And this is where to be frank, I just need a longer track record. Sure. This is a company that's only been public for less than two years. And so it's a little bit difficult to judge the current management team in particular on that investment track record. And so I think with more time, we'll be able to reassess that capital allocation rating. That's fair. Yeah. So with regards to capital allocation, you just mentioned this, but it's just basically a modest dividend consistent buybacks. And then they just made their-- they've made a few acquisitions. Is that kind of how they prioritize their free cash flow? Yeah. What they've said is they aim to return at least one third of cash flow generation to shareholders. So some of that's going to come in the form of a dividend. But more of it's going to come in the form of a buyback. I think they did over $3 billion of buybacks in $25. And then yeah, but you're still left with a big slug. That's available. And so that's where the organic side is obviously a focus, but then also on the inorganic side. They did just do this deal within the electrification business. consolidating a joint venture, the GE Prolec joint venture, down in Mexico, which we like, given they know the asset, they know the market as well. And so I think that electrification business in particular, that's a business that the CEO has been very frank was sort of overlooked under the general electric umbrella. So I would look for, as you think about where the company is going to deploy capital, both organically and in organically, I think that electrification business is probably at the top of the list, just because again, it was sort of orphaned within the broader GE umbrella. And there's more that the company can do there. Yeah, I also like that prolek acquisition because like you said, it's an asset they've known for like 30 years, I think. And so it's all, they almost like de-risked it in a way by buying an asset that they know so well. You mentioned that there's a big slug of extra free cash flow there because they've committed to returning a third of it. And so my question is, do you think there's any upside optionality when you think about GE vernova and where the valuation could potentially go, you know, wait years down the road? Yeah, the number one thing is going to be pricing and just how much higher they can go on the gas turbine side, at least for the near to medium term because that's an area where I don't think we've actually hit peak there. So there's further they could do on the gas turbine pricing side. Electrification similarly in terms of where that goes from both a price and a volume standpoint in terms of potential upside. There's also some self help. Just initiatives, I mean, this again was a business that was sort of overlooked. The broader of an overbusiness was sort of overlooked within the general electric umbrella when the company originally was coming public at the spin. You know, they talked a lot about cost cutting and lean initiatives and just what I classify sort of self help initiatives. Those have kind of been put on the back burner just because demand has been red hot, but they're still they're still out there in terms of upside here in terms of cost cutting and just just broader efficiency. And then the last thing is, you know, M&A and, you know, that has obviously a risk and opportunity, but when you have this much cash that's going to be coming in the door, you know, how you deploy that that's, you know, that's a key opportunity for the company in terms of, you know, growing the business and positioning the business well as you look out into the next decade. Yeah. Yeah. What do you think are the biggest risks investors should be aware of? It really comes down to AI not to be not to be too simplistic about it, but again, when you think about the impact AI is having on electricity demand and we talked about just the range of outcomes associated with that. How fast this is all moving. That is that's going to determine that's going to be the biggest determinant in the single biggest variable that I outlined here, which is that power equipment margin on a mid cycle basis. AI is going to be the biggest thing to watch there in terms of the demand. So, you know, AI has been the tailwind for the company for the past two years, and it's all, but it's also, you know, the biggest thing to watch on the downside. Definitely. Is there anything we missed? Anything else you'd like to discuss before we close out this conversation on GE Vernova? No, I think we think we hit the key points. I really appreciate the discussion and thanks for having me on, John. Definitely. Brett Castelli, senior equity analyst at Morningstar. Thank you so much for coming on to the show and sharing your knowledge on GE Vernova. Electrification of everything is a theme that I think personally has a long runway. So, I'd love to have you on again to discuss another company in your coverage at a later date. Until then, be well, Brett. Thank you so much. Thank you. Fashion to do sharing is a fee-only SEC registered investment advisor. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions or personalized financial tax or legal advice. It does not constitute either explicitly or implicitly any provision of services or products by Bastion. All statements made regarding companies or securities are strictly beliefs and points of view held by Bastion or podcast guests and are not endorsements or recommendations by Bastion to buy, sell or hold any securities. 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