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

General Electric spun out just over 80% of its healthcare business, fair value estimate adjusted to $87 per share.

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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.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Joshua Aguilar

Director of Equity Research, Resources
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Joshua Aguilar is the director of resources equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc.

Aguilar joined Morningstar in 2016 as an associate on the financials team, and he was promoted to analyst on the industrials team in 2018 and to senior analyst in 2022. He has served as associates coordinator since 2021 and led Morningstar's diversity efforts as DEI co-chair since 2020. Aguilar has been a mentor to several associates on their paths to becoming analysts. He also has hosted a Morningstar earnings town hall, participated in analyzing Morningstar stock, and been a strong contributor through both client interactions and his General Electric stock call. Aguilar co-authored an Outstanding Research Achievement-winning piece with colleague Kris Inton on CEO compensation in 2021. He also has taught Morningstar's model to new hires for many years as part of the valuation committee.

Before joining Morningstar, Aguilar was a practicing business transactional attorney in Florida. He graduated magna cum laude with a bachelor's degree in political science and criminology from the University of Florida. He also has a Master of Business Administration from Rollins College and a Juris Doctor from Wake Forest University.

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