JPMorgan analyst Stephen Tusa has long been a General Electric bear but this week he seems to be changing his tune, a little. Tusa appears to think we can expect to see a decline in GE’s onshore wind-power business in 2021. In addition, he also says this is could be an opportunity for the company has been looking for to turn around their struggling operations and take back their prominent position as a leader in US industrial manufacturing.
In a research note, released on Monday, Tusa advises the long term outlook for wind power has a bit of an obstacle to overcome with US government tax credits for renewable-power generation set to expire next year. In his report, cleverly titles “Gone with the Wind,” Tusa notes that “Renewables is an important $10 billion of revenues that we believe is largely overlooked.”
General Electric’s renewable-power generation operations are mainly an onshore effort, characterized by wind-power turbines and a service business. The arm of the company employees approximately 23,000 people with more than 40,000 of these turbines in operation around the world.
GE CEO Larry Culp insists that renewable power will be the company’s fastest growing element in 2019. Certainly this will be a good thing for a company with cash flow in the red. As a matter of fact, Culp admits that they will definitely see negative case in that particular part of the business; but that is easily a result of a combination of the nature of business, the progress moving forward, and how US demand affects collections and disbursements.
Culp concludes that the team has done a “very nice job driving productivity. We have some of the project execution challenges there, but I don’t think we feel like we are undersized even though we’re third overall in wind.”
Indeed, GE’s wind business is third in the world behind only Siemens (of Germany) and Vestas Wind Systems (of Denmark). Regarding this, Tusa’s report tells both Vestas and Siemens expect this to be a strong year; and many industry consultants agree. Also, his report regards demand for wind power turbines will return in 2020, before tax-credit expirations. At the same time, he predicts the market will actually crash—losing 30 percent—in 2021.
As a matter of fact, the company’s 2019 annual report states, “We expect additional opportunities to ‘repower’ existing wind turbines. Repowering allows customers to increase the annual energy output of their installed base, provides more competitively priced energy and extends the life of their assets.”