Narrow-moat-rated General Electric (GE) made some news as Bloomberg reported late on Dec. 18 that the conglomerate confidentially filed for an initial public offering of its healthcare unit. A GE spokesperson declined to comment on the report, saying only, "As we announced in June, GE intends to separate its healthcare business, but we have not confirmed the form or timing," according to CNBC. Indeed, the form and timing have been the subject of much speculation and debate. We’ve speculated that GE may still try to sell a portion of its life science business after rumors that it rejected interest from Danaher earlier this year. The life science business could yield about a $20 billion enterprise value. New CEO Larry Culp also left the door open to selling a bigger piece of the healthcare business. For now, we are not making any changes to our $13.70 fair value estimate.
The public filing will probably be next spring, according to Bloomberg, potentially accelerating the timing of the healthcare separation by months from what we speculated. Private filings tend to cut down the time needed to IPO, but some of these considerations are offset by GE Healthcare’s size, which would rank as one of the world’s largest for a public healthcare company. We had already previously deleted all healthcare-related cash flows from 2020 onward in our model. We agree with news reports that see an enterprise value ranging from $65 billion to $70 billion based on comparable companies. We peg ours at the midpoint of the range, given the forward enterprise value/EBITDA multiple for peer Siemens’ Healthineers business, which was spun off in March (among other comps). Based on GE’s public statements in June, the company will assume about $27 billion in debt. About $18 billion of this debt will be related to borrowings and about $9 billion will be related to pensions, implying that GE Healthcare will have an equity valuation of about $40 billion.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Joshua Aguilar does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.