After announcing it had reached a deal to sell its BioPharma business to Danaher, General Electric (GE) continued showing investors that it is focused and serious on selling non-core assets in order to clean the balance sheet and return focus its core revenue-generating operations. The move not only freed up its balance sheet and increased investor confidence in the stock, but is expected to push off the IPO of its Healthcare unit to beyond 2019.
Heymann believes that GE received way more for its BioPharma business than what its worth. The analyst says that he “had estimated the Life Sciences business (including Biopharma) might be worth about $10 billion-$12 billion,” of the Healthcare unit’s total $46 billion-$48 billion enterprise value. Not only did GE receive significantly more than his estimate, but the company still retains some of its Life Sciences business.
As a result of the sale, Heymann says he has “increased [his] 2019 EPS estimate to $0.71 (from $0.58 previously) to reflect the expectation that all of GE Healthcare is now likely to be retained by GE throughout 2019 until Biopharma is sold to Danaher by year-end.” The analyst continues, “perhaps in early 2020, GE will then consider the IPO of its remaining healthcare operations. Instead of taking just under 50% of GE Healthcare public by midyear, if all of GE Healthcare is retained until year-end 2019, we estimate GE’s recent industrial 2019 EBITDA forecast of $10.3 billion could rise by as much as $2.1 billion (roughly half our full-year estimate of GE Healthcare’s 2019 EBITDA).”
Heymann is optimistic on GE after this move. He says, “the new two-part monetization plan for GE Healthcare might raise $15 billion in additional cash but reduce the amount of debt and underfunded pension able to be transferred to the remaining (smaller) GE Healthcare prior to an IPO (now more likely in early 2020) by $4.6 billion ($5.0 billion less collectively offset by the $0.4 billion of underfunded pension assumed by Danaher with the purchase of Biopharma).”
All in all, Wall Street is surely more optimistic on GE than it was this time last year. The company dug itself into quite the hole, but investors and analysts are increasingly confident that the company is taking the necessary steps to get out.
TipRanks analysis of 13 analyst ratings shows a consensus Moderate Buy rating, with six analysts rating Buy, six Holding and one Selling. The average price target among these analysts stand at $10.60, which is about 3% lower than its current value, most likely a result of Monday’s quick surge and analysts’ inability to turnaround new price targets so quickly. (For more insights on GE, get a free research report)
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