GE Is Worth More in Pieces. Wall Street’s Math Shows Why.

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General Electric

will soon be breaking into three parts, so Wall Street is starting to value the company on a sum-of-the parts basis.

Analysts’ math seems to indicate that GE is worth more in pieces than as a unit. Barron’s came to the same bullish conclusion after looking at GE’s individual businesses and valuing them separately. We finished the process believing that the underlying value of the company was about $125 a share, up more than 65% from recent levels.

GE Aerospace

GE’s aviation business, which will be called GE Aerospace, is the most highly valued among analysts. It also appears the least controversial. Valuations we have seen range from about $83 billion to $96 billion. The $13 billion spread between those numbers is about 15% of Barron’s estimated value of $85 billion.

William Blair analyst Nicholas Heyman values Aerospace at about $83 billion. His sum-of-the-parts call is about $125 a share. Heyman rates shares at Buy, but doesn’t have an official target for the price.

GE HealthCare

Analysts see GE’s healthcare operation as its second-most-valuable business. It is also the one that will become a separate entity first, via a spinoff that is due to be completed in early 2023.

Valuations Barron’s has seen for GE HealthCare range from about $43 billion to $65 billion. Melius Research analyst Scott Davis is at the higher end, at around $65 billion. His overall SOTP valuation is about $118 a share, but he has a target of $108 for the price. Davis rates GE shares at Buy.

The $22 billion spread between the highest and lowest call is about 40% of the $55 billion valuation Barron’s assigns to GE HealthCare.

GE Vernova 

GE’s renewable power, gas power generation, digital and grid technology businesses will be housed in what GE will call GE Vernova. This one is the toughest for Wall Street to value. Some analysts, for instance, assign zero value for GE’s wind business.

Valuations for Vernova are all over the map, ranging from about $10 billion to $33 billion. The $23 billion spread is about 82% of the $28 billion valuation Barron’s used to value GE’s energy businesses.

RBC analyst Deane Dray values power and renewables at the lower end of the range, at about $11 billion on a combined basis. His overall SOTP valuation is about $94 a share—the same level as his target for the stock price. Dray also rates GE stock Buy.

Balance Sheet and Price Targets

Roughly speaking, the average valuation of the three businesses is about $158 billion, but obligations on GE’ s balance sheet reduce that total. Not surprisingly, each analyst treats GE’s pension, long-term-care insurance liabilities, and corporate costs a little different than others.

After adjusting for those factors, the $158 billion value for the whole company becomes a target market capitalization of about $115 billion. GE has about 1.1 billion shares outstanding, so the $115 billion value turns into a stock price of about $105.

That’s the average SOTP stock valuation, but analysts’ price targets based on the sum of the parts go all the way from $82 a share to $125 a share.

Time will tell how each of the businesses will do and how each of the three stocks will trade. But for now, the SOTP math indicates that analysts believe GE management is on the right track in breaking up the company. The $105 average SOTP valuation is well above the average analyst price target of about $89 a share.

Wall Street seems optimistic about the company. About 69% of analysts rate the shares at Buy, while the average Buy-rating ratio for stocks in the

S&P 500
is about 58%.

Write to Al Root at [email protected]