General Electric (GE) Spin-off Notes

January 20, 2023 Update

General Electric (GE) spun off ~80% of its healthcare business – General Electric Healthcare (GEHC) – on January 3, 2022. Regular way trading began on January 4, 2023. GE will retain ~20% of the spin-off to provide further capital allocation flexibility.

GE Healthcare services health care providers and researchers. It sells imaging, ultrasound, patient care solutions, and diagnostic machines to a global customer base. End markets are growing at a mid-single-digit clip. GEHC expects to grow revenue on an organic basis at a mid-single-digit clip. It expects EBIT margins to expand from mid-teens to low 20s. It expects to generate ~$2BN in free cash flow in 2022 and expects FCF to grow with earnings going forward. Here is the form 10 and slide deck.

GEHC is trading at $59 per share. This implies a market cap and enterprise value of $26BN and $41BN. On a valuation basis, it’s trading at 15.5x EBIT and 14.1x FCF. This seems very cheap on an absolute basis (Siemens Healthineers and Danaher trade at an EV/EBIT multiple of 24.5x). It also seems reasonably cheap on an absolute basis. However, it doesn’t seem like a no-brainer, at least for me. I think a share price of $41 (10x FCF) would be an attractive entry point.

I don’t think GE is worth buying ahead of the healthcare spin-off as the GE story is going to remain relatively complex (we are going to have to wait another year for the energy/power spin-off).

September 16, 2022 Update

  • More information is expected on the investor day GE is hosting on December 8, 2022

September 2, 2022 Update

Good write-up on the split-off of Healthcare and Energy & Power Businesses

November 12, 2021 Update

On November 9, 2021, General Electric (GE) announced its plans to split into three companies: One focused on healthcare, another devoted to energy and power, and the third dealing with aviation. The healthcare spinoff is slated for 2023, and GE plans to retain a 19.9% stake. The spinoff of the power business is planned for 2024. Investors were happy with the news as the stock shot up more than 5% to roughly $114.  GE CEO Larry Culp says, “Greater focus and accountability will come from this structure.” He sees benefits from the move in terms of capital allocation and talent retention in each business, as well as gains for GE’s customers. The hope is, from the CEO’s perspective, that down the road, all three companies are targeting investment-grade credit ratings by continuing to deleverage. I think the spin-off will unlock value (Wall Street loves simplicity), but there’s really nothing actionable to do today as the first spin-off won’t take place until 2023. As such, I think GE will be in “spin-off purgatory” for the foreseeable future.