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General Electric Co GE

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We Approve of Potential Gecas Deal and Foresee Modest Value Accretion for GE

Joshua Aguilar Equity Analyst

Analyst Note

| Joshua Aguilar |

On March 7, 2021, The Wall Street Journal reported that aircraft operator AerCap Holdings is nearing a deal for General Electric’s Capital Aviation Services, or Gecas, based on a $30 billion-plus enterprise value. We don’t yet have additional deal terms and can’t precisely model it without knowing the exact enterprise value and debt versus cash financing mix. Therefore, we maintain our $14.10 fair value estimate for narrow-moat GE until we have greater clarity on the deal. However, we’ve modeled potential deal parameters in the background based on several assumptions, which implies about $0.50 of shareholder value accretion on our fair value estimate. This would hypothetically bring our fair value estimate up about 3% to 4%. The key takeaway is that the reported deal terms poke yet another hole in a bear case that we think is on its last legs. Recall that just two years ago, before the pandemic and the sale of PK AirFinance to Apollo for $3.6 billion, bears asserted that the value of Gecas’ portfolio was in the mid-$20 billion worth.

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Company Profile

Business Description

GE was formed through the combination of two companies in 1892, including one with historical ties to American inventor Thomas Edison. Today, GE is a global leader in air travel, precision health, and in the energy transition. The company is known for its differentiated technology and its massive industrial installed base of equipment sprawled throughout the world. That installed base most notably includes aerospace engines, gas and steam turbines, onshore and offshore wind turbines, as well as medical diagnostic and mobile equipment. GE earns most of its profits on the service revenue of that equipment, which is generally higher-margin. The company is led by former Danaher alum Larry Culp who is leading a multi-year turnaround of the storied conglomerate based on Lean principles.

5 Necco Street
Boston, MA, 02210
T +1 617 443-3000
Sector Industrials
Industry Specialty Industrial Machinery
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 31, 2021
Stock Type Cyclical
Employees 174,000