GE Vernova's Backlog Surge Masks Execution Risks as Dividend and Buybacks Rise

What happened

GE Vernova reported a $31.2 billion backlog increase for 2025 and doubled its dividend while expanding share buybacks, signaling strong demand and shareholder returns. However, DeepValue analysis cautions that this backlog growth is driven significantly by slot reservation agreements (SRAs), which SEC filings explicitly warn may not convert to firm orders and could lead to idle capacity and write-downs. The company's free cash flow boost relies heavily on working capital inflows from customer down payments, a temporary benefit that may reverse as deliveries accelerate and supplier advances rise. Offshore Wind segment losses persist, absorbing earnings and cash that could otherwise support returns, undermining consolidated profitability. Investors must therefore look beyond the headline numbers to assess the conversion of SRAs into firm backlog and the on-schedule mid-2026 gas capacity ramp, both critical for justifying the stock's lofty valuation.

Implication

The backlog increase, while impressive, does not address the quality of orders or the risk that SRAs may fail to convert, a key downside boundary highlighted in filings. Dividend hikes and buybacks are funded by working capital tailwinds from down payments, which could normalize and pressure future cash flow, especially with ongoing Offshore Wind losses. Valuation at 44.7x P/E and 56.7x EV/EBITDA embeds perfection in SRA conversion and capacity expansion, leaving no margin of safety for delays or reversals. Monitoring firm backlog growth versus SRAs over the next two quarters is essential to gauge order quality, alongside tracking free cash flow stability as working capital normalizes. Until these execution milestones are met, the stock remains vulnerable to a re-rating if the scarcity narrative falters, reinforcing the 'WAIT' rating for prudent investors.

Thesis delta

The news reinforces the existing DeepValue thesis by confirming backlog growth and shareholder returns, but introduces no new data to mitigate the critical risks of SRA conversion and working capital reversal. The investment call stays unchanged at 'WAIT,' as the thesis requires verification of firm backlog growth and sustainable cash flow, which this announcement does not provide. No shift in the thesis is necessary, but it underscores the need for vigilance in upcoming quarterly disclosures.