General Electric (GE) is sparking interest in investors as the company prepares for next year’s initial public offering (IPO) for its healthcare segment. The big move is big news for shareholders as management tries to strike favor and create value for investors. Seeking Alpha blogger, Daniel Jones weighs in on the move favorably.
While its known that GE’s core operations are in power and aviation, the healthcare division is still a big contributor to the firm as a whole, according to the blogger. His own estimates include $3.72 billion for segment profits, which would show an increase of about 8% from what was generated in 2017. The blogger explains the significance: “The divide between Healthcare and the other, let’s say more industrial, operating segments of General Electric is noteworthy because since it’s so different from the rest of the business, it’s also the part of the firm least likely to be affected by some of the operating deficiencies of the conglomerate. In addition, this divide also will likely translate to the separation of Healthcare meaning less, in the form of lost operating synergies, to the business and shareholders than if any other segment were split from the enterprise.”
The blogger compares GE to two other businesses in similar spaces including Stryker Corporation (SYK) and Thermo Fisher Scientific Inc. (TMO). These are both operations dedicated to medical technology. He suggests that in terms of margin performance, GE’s healthcare segment is on point when compared to the two aforementioned companies. The blogger notes the importance lays in the ability of management to translate revenue into profit for all segments, which will be a big factor when determining the value of the operation.
“This may be hard to believe from the perspective of investors and market participants, but by splitting up the firm like this, the company has the opportunity to not only restructure its asset base and streamline core operations, it has the chance to let certain assets that would benefit from independent management teams focus on optimizing their own assets. Absent something wholly unexpected, I don’t see a realistic scenario where this fails to generate value,” the blogger concludes.
Though Jones says he can’t see a negative from this news, not all Wall Street analysts look at General Electric stock as enthusiastically. TipRanks analytics show out of 17 analysts keeping an eye on GE, 7 are bullish, 9 are sidelined and 1 is bearish. It is yet to be seen how the new public offering of GE’s healthcare segment will affect the stock. Currently, the Street consensus price target of $10.79 shows a potential upside of just about 56%. (See GE’s price targets and analyst ratings on TipRanks)