GE HealthCare Will Improve Its Focus, but Spinoff Unlikely to Change Near-Term General Electric Outlook

Following the market close on Jan. 3, 2023, narrow-moat-rated General Electric GE spun off just over 80% of its healthcare business. Based on comparable trading multiples, we believe the entire healthcare business is worth somewhere between $32 billion to $33 billion in equity value. We apply a near 12 times multiple to over $3.9 billion of expected EBITDA in 2024, which yields an enterprise value of over $46 billion. Based on its form 10 filing, GE HealthCare GEHC will assume $10.2 billion of debt and $5.2 billion of pensions, which we subtract from our enterprise value. However, it will also enjoy a cash balance of $1.8 billion, which we add back to yield our assumed equity value. GE will retain the remaining portion of the healthcare business it doesn’t spin off, or just under 20%. We expect it will monetize this interest over time. We reduce our fair value estimate to $87 per share from $122 previously to account for the proportion of healthcare GE no longer owns.

While we don’t formally apply moat ratings to segments, we think GE HealthCare would merit a solid narrow moat rating based primarily on switching costs and to a lesser extent intangible assets. Assuming an addressable market of about $84 billion, GE HealthCare, or GEHC, holds leading market share of about 22%. It’s number one or number two in most of the categories in which it competes.

We expect the GEHC spinoff will help provide its business with a greater focus, since its management can make its own capital allocation decisions. Importantly, however, we don’t expect GE’s stock price will immediately rebound until the Vernova spinoff, given the significant losses in its renewables business and investor reluctance to own an unattractive no-moat business attached to GE’s leading aerospace franchise.