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General Electric (GE) to Split Into Three Independent Companies

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General Electric Company GE yesterday announced plans to split its businesses into three public companies in tax-free transactions. One of the companies will comprise GE Healthcare, while the other two will include GE Aviation, and the combined businesses of GE Digital, GE Power and Renewable Energy.

The market took the news positively, as evident from a 2.65% increase in General Electric’s share price yesterday. The trading closed at $111.29.

Inside the Headlines

As noted, the spin-off business of GE Healthcare will become one of the prime players in the precision healthy industry. The transaction will be complete in early 2023. General Electric will own a 19.9% stake in the spun-off GE Healthcare.

Secondly, the combined businesses of GE Digital, GE Power and Renewable Energy will play an important role in the energy transition. The transaction will be completed in early 2024.

Lastly, General Electric will comprise its GE Aviation business.

The completion of the transactions is contingent upon the receipt of approvals from General Electric’s board of directors, and the fulfillment of other customary closing conditions.

The rationale of these spin-offs is to create better values for investors, employees and customers. With solid long-term growth opportunities, the companies will exhibit better operational focus, capital allocation policies, and financial flexibility. Each will have investment-grade ratings.

The transactions add vigor to General Electric’s efforts to reshape its portfolio over time. It will also strengthen its existing efforts to improve liquidity, help in cash management, and lower debt obligations. For now, General Electric plans to lower debts by $75 billion from 2018 to 2021, achieve a net-debt-to-EBITDA ratio of < 2.5x in 2023, and gain free cash flow margins of high-single digits in 2023.

Also, General Electric will continue to shed its stake in Baker Hughes Company BKR and monetize stakes in AerCap Holdings N.V. AER. Notably, General Electric (on Nov 1) received 111.5 million shares of AerCap Holdings as part of the payment from the combination of its GE Capital Aviation Services business with AerCap Holdings.

Zacks Rank, Price Performance and Estimate Trend

General Electric currently has a market capitalization of $119.1 billion and a Zacks Rank #3 (Hold). Solid contract wins, portfolio-restructuring measures and healthy liquidity position are expected to aid the company in the quarters ahead. Prevalent supply-chain constraints are concerning.

In the past three months, General Electric’s share price has increased 4.9% against the industry’s decline of 6.9%.

Zacks Investment Research
Zacks Investment Research

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The company’s earnings estimates are pegged at $1.98 for 2021 and $3.90 for 2022, reflecting an improvement of 3.7% and a decline of 0.8% from the respective 30-day-ago figures. Also, earnings estimates are pegged at 82 cents for the fourth quarter of 2021, reflecting a decline of 12.8% from the 30-day-ago figure.

General Electric Company Price and Consensus

General Electric Company Price and Consensus
General Electric Company Price and Consensus

General Electric Company price-consensus-chart | General Electric Company Quote

A better-ranked company in the industry is Carlisle Companies Incorporated CSL. It presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past 60 days, the company’s earnings estimates improved for the current year and it recorded an earnings surprise of 9.52% for the last reported quarter.


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General Electric Company (GE) : Free Stock Analysis Report

Carlisle Companies Incorporated (CSL) : Free Stock Analysis Report

Baker Hughes Company (BKR) : Free Stock Analysis Report

Aercap Holdings N.V. (AER) : Free Stock Analysis Report

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