Can investors trust the General Electric (GE) comeback?
GE stock is up more than 60% since its mid-December lows, and surged as high as 15% during trading on Monday. The company announced it had reached a deal to sell its BioPharma business to Danaher (DHR), showing investors that it is finding success in its restructuring efforts, as it continues selling non-core businesses in order to clean the balance sheet and return focus its core revenue-generating operations. Until today’s sale GE was also expected to spin-off its Healthcare unit in 2019, which would’ve provided for a massive cash influx, further aiding its financial health.
Nevertheless, Cowen analyst Gautam Khanna maintains his Market Perform rating and $8 price target, which sits nearly $3 less than its current trading value. (To watch the analyst’s track record, click here)
According to the press release, Danaher “has entered into a definitive agreement with General Electric Company…to acquire the Biopharma business of GE Life Sciences…for a cash purchase price of approximately $21.4 billion,” representing a ~17x multiple on 2019 EBITA.
This is a significant move for GE, as it not only clears up space for the company to re-focus on core units, but also provides a massive $21+ billion windfall. As GE is burdened with $110 billion of debt, the billions of dollars it generates through the sale of non-core assets is expected to greatly contribute to its ability to finance loans to pay down the debt.
Khanna says that post-sale “GE Healthcare will be an approx. $17B sales, $2.6B EBIT (near $3.4B EBITDA) business, which GE no longer expects to monetize via an IPO.” According to the analyst, “GE had planned to offload $18B of debt/pension liabilities via the Healthcare IPO, and monetize an equity stake worth ‘up to 50%’.” While Khanna does not seem too excited over this news, he says, “on a positive note, by shelving the IPO, GE keeps a fairly high cash conversion business in the portfolio, at least for now, and allows for a more opportunistic exit of HC vs. the “fire sale” urgency that otherwise would have been conveyed to buyers/investors.”
GE is surely digging itself out of the hole it created. The question is how quickly will the company actually pop out from under. The Wall Street community is optimistic this will be soon. Overall, TipRanks analysis of 15 analyst ratings shows a consensus Moderate Buy rating, with eight analysts rating GE stock a Buy, six issue a Hold and only one recommends a Sell. The average price target among these analysts stands at $11.20, which is about 4% higher than its current value. (See GE’s price targets and analyst ratings on TipRanks)
Read More on GE: