This is what the 'new' GE is worth

By IndustrialsFOXBusiness

GE is doing exactly the right thing: Dennis Gartman

The Gartman Letter Publisher Dennis Gartman on the outlook for General Electric.

General Electric on Tuesday unveiled a simpler, leaner company that will focus on power, aviation and renewable energy.

Continue Reading Below

To come to this point, GE will spinoff GE Healthcare and Baker Hughes with GE Healthcare becoming a standalone company over the next 12-18 months. Baker Hughes will be separated over the next two to three years.

CEO John Flannery said on a conference call discussing the company’s plan, “This is a turnaround strategy.”

Analysts have since weighed in on GE’s moves. Melius Research called GE’s “break-up” plan “logical.” They added that “Bears will pick on the GE balance sheet and they are not totally wrong.”

They said the de-leveraging will be costly – asset sale proceeds will go to pay down commercial paper (short-term debt), so EPS dilution is material.

Accounting for the spin-offs, and sold assets, Melius says “We still get high-teens stock value on the low-end and mid-20s on the high end.”

They added that naming Larry Culp as lead director is a nice positive and should give new shareholders comfort

More from FOX Business

“In the end, it’s hard to imagine that GE shareholders don’t own a company with materially higher value than $13 – in 2 years. Spin-offs normally work – the pieces and stub GE should be very good investments – given the quality of the assets and costs that can come out.”

Melius’ sum-of-the parts analysis puts an implied price target of $22 per share on the company in 2020, which is a 76% upside from its current price of about $13. They estimate the post-spin aggregate dividend will be $0.35, down 27% from the current dividend.