General Electric (GE) has successfully split its business into three independent companies, with GE Vernova (GEV) representing the energy-focused division. RBC Capital Markets Analyst Chris Dendrinos joins Yahoo Finance Live to discuss his bullish initiation of coverage on GE Vernova, rating the stock as Outperform with a $160 price target.

Dendrinos explains that with "multi-national conglomerate[s]," funds are often invested in certain parts of the business while others remain underinvested. With General Electric's company splitting into standalone businesses, he believes all investments for GE Vernova will be directed into the energy business, boosting transformation efforts.

When asked about competition concerns, Dendrinos says that GE Vernova is a "leader" in all of its segments. However, he notes that on the wind front, Siemens Energy (ENR.DE) could be a competitor, and in the power segment, Mitsubishi (6503.T) could pose a challenge.

Dendrinos highlights that GE Vernova has a "multi-year pathway" to financial improvement, emphasizing that it will be a long-term effort to reach normalization. Nevertheless, he believes the company will eventually achieve the desired free cash flow, which should boost the stock's valuation.

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Editor's note: This article was written by Angel Smith

Video Transcript

- GE completing its energy spinoff under the new name GE Vernova-- RBC Capital Markets initiating coverage on that stock with an outperform rating this week. For more, we're talking to the author of that note RBC Capital Markets analyst, Chris Dendrinos. Chris, it is good to see you.

And maybe just to start kind of at a high level, Chris, interested to get your take on the overall strategy here. GE decided to split into these three independent businesses. The right move in your opinion, Chris?

CHRIS DENDRINOS: Yeah, absolutely. And I think the way that I think about it is if you look at a multinational conglomerate, the idea behind that business structure is you have economies of scale, and you can benefit from cost-savings there.

But what happens in a business like that is there's naturally capital allocation decisions that go on, and everyone everywhere prioritizes their best investments first. And so for GE that has a different margin profile across that business.

You know, aerospace is fantastic. Energy can be fantastic, but it's a lower-margin business than aerospace. And so I think naturally, you know, that business gets underinvested in. And as a spin-out, as a standalone business, now, the only investments that this company can make are in the energy business.