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