Shares of General Electric Co. pulled back Wednesday, even after long-time skeptic Nicole DeBlase at Deutsche Bank turned bullish, saying the industrial conglomerate’s plan to break up into three separate companies marks a fitting end to a “successful” transformation.
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On Tuesday, the stock rallied 2.7% to $111.29, the first close above the top of its long trading range of roughly $100 to $110 in five months, after GE announced plans to spin off GE Healthcare in early 2023, combine GE Renewable Energy, GE Power and GE Digital into one company then spin that off in early 2024, and have the remaining company focus on aviation.
Don’t miss: GE stock jumps to 5-month high as plan to split into 3 companies boosts hopes of a breakout.
GE’s stock has rallied 28.3% this year, while the S&P 500 index SPX has advanced 24.5%.
“We have never fully understood the need for these businesses to sit together within on company — and we agree that shifting to three pure-play companies should bring better focus and paths to value creation for all three,” DeBlase wrote in a note to clients. “We are fully on board with this plan, and think this is an appropriate ‘end game’ for what has turned out to be a successful transformation.”
DeBlase raised her rating on GE to buy, after being at hold for at least the past two years. She lifted her stock price target to $131, which implies about 18% upside from current levels, from $119.
“We acknowledge that our own work does caution of stocks trading sideways from the period between spin announcement and spin completion, but we would rather be early given the amount of value that can be unlocked here,” Deblase wrote, as she also likes GE’s “late-cycle end market skew” and exposure to several important secular themes, such as decarbonization and precision health care.
UBS analyst Markus Mittermaier, who has been bullish on GE for the past two years, said he believed the split announcement “is the beginning of a journey, rather than the end.”
He reiterated his buy rating, while boosting his stock price target to $143, which would be the highest of the analysts surveyed by FactSet, from $136.
“We believe focus is valuable at GE, where the complexity itself has been a deterrent for many investors,” Mittermaier wrote.
Then there’s always J.P. Morgan’s Stephen Tusa, who has been neutral or bearish on GE for years, and was among the first on Wall Street warn investors of the company’s downfall. He doesn’t believe the split will fix GE’s woes.
Since GE will retain a 19.9% stake in GE Healthcare, the spinoff’s shareholders will only see 80.1% of the value, Tusa said, which he also noted was difficult to calculate. He added GE’s renewable energy business is “probably the most challenged” of the companies he covers, “and likely to collapse as per countless warnings from almost all global peers.”
Like DeBlase, Tusa also noted that most spins “tread water” between announcement and consummation, but unlike DeBlase he said trading flat is the “best case” for GE’s stock. He actually sees a “clear path” to $80 to $85 for the stock.
“Bottom line, prior attempts at portfolio ‘value creation’ have fallen victim to weak underlying details versus the historically positive narrative under the GE umbrella,” Tusa wrote. “[T]o be clear, view $80-$85 as a starting point for the debate before the actual underlying numbers are reported, which we don’t think are actually expected to be ‘better’ than standing guidance.”
