Deutsche Bank Still Sees Over 20% Downside for General Electric (GE) Stock; Here’s Why
Following its sale of its BioPharma business to Danaher, analysts and investors across the world are taking note of General Electric’s (GE) continued sell-off of non-core assets. The company is undergoing a massive restructuring effort to clean the balance sheet and return focus its core revenue-generating operations. News of the sale sent the stock soaring as 15% on Monday, though shares are already down 8% since Monday’ high.
While Wall Street may be increasingly optimistic that GE will turnaround, Deutsche Bank analyst Nicole DeBlase isn’t quite ready to pull the trigger. The analyst maintains her Hold rating and $8 price target on the stock, which implies nearly 23% downside from current levels. (To watch DeBlase’s track record, click here)
The deal represents multiples of 7x revenue and 17x EBITDA, which the analyst views as “attractive” when compared to comparable deals.” DeBlase says she views the new “as a positive given that it provides clearer line of sight on balance sheet cleanup.” She believes the number one “investor focus is de-leveraging the balance sheet, and this asset sale provides $20bn of cash in a timely manner, allowing the company to reduce Industrial debt to ~$28bn (vs. $48bn currently) in one fell swoop.” Furthermore, DeBlase says that “the company is retaining 84% of its Healthcare franchise in terms of revenue….[and] while an IPO is now off the table, this could give the company a nice stream of FCF to use to pay down debt.”
Even though DeBlase sees this as a positive development for the company, she doesn’t think GE is out of the woods just yet. The analyst points to “a few outstanding questions for the company…[including] details on pension obligations that will be transferred to Danaher as part of the deal…FCF profile of the remaining Healthcare business…strategy for remaining Healthcare business given that IPO is off the table…and…why the company is retaining ~$1bn of Life Science sales.”
But overall, as GE continues its restructuring plan, Wall Street is becoming a bit more optimistic. TipRanks analysis of 13 analyst ratings shows a consensus Moderate Buy rating for the stock, with six analysts rating Buy, six Hold and one Sell. The average price target among these analysts stand at of $10.60, suggesting the stock is neither overbought nor oversold. (For more insights on GE, get TipRanks’ free research report)