Analysts Remain Skeptical Amid General Electric's Aggressive Asset Sales

After a disastrous couple of years, General Electric Company GE is off to a red-hot start to 2019, up 39 percent year-to-date.

A large part of that market optimism has been based on GE’s successful asset sales in the first part of the year, but the obvious question for long-term investors is just how much will GE’s remaining businesses be worth once it finishes making cuts.

Aggressive Asset Sales

GE stock rose last week after the company announced the sale of its biopharma business to Danaher Corporation DHR for $21.4 billion. The biopharma sale is the latest in a string of asset sales and planned asset sales for GE:

• GE sold its industrial solutions business to ABB for $2.6 billion in late 2017.
• In April 2018, GE sold its health care IT business to Veritas Capital for $1.05 billion.
• In May, GE announced the sale of its transportation business to Westinghouse Air Brake Technologies WAB for $2.9 billion.
• In June of last year, GE sold its distributed power business to Advent for $3.25 billion.
• In November, GE said it plans to raise $4 billion by selling its stake in oil services giant Baker Hughes A GE Company BHGE.

Analysts Remain Skeptical

All of these asset sales have helped eliminate immediate concerns about GE’s solvency, but they have come at a high price for investors.

“Make no mistake, this is still an instance where the co is selling down perhaps the ‘jewel’ to pay down debt/capitalize GECS/deal with liabilities,” JPMorgan analyst Stephen Tusa said of the biopharma unit sale. Tusa said the latest sale did not impact his $6 price target, and he is still waiting to see what level of earnings power GE is left with after it completes its asset sales.

Other analysts remain skeptical of the GE turnaround plan as well.

“GE has $26 billion in debt maturing in 2020, and I had said it might have had a difficult time refinancing the debt and may have no choice but to sell assets — and yesterday’s announcement is a step in that direction,” Tigress Financial analyst Ivan Feinseth wrote in his newsletter. Feinseth said GE's stock still has downside risk to $6 per share, but he is slowly becoming incrementally more positive as the company shores up its balance sheet.

Show Me The Earnings

Following last week’s asset sales, UBS analyst Peter Lennox-King cut his 2019, 2020 and 2020 EPS estimates for GE to just 76 cents, 89 cents and 86 cents, respectively.

“Going forward, GE will also clearly be smaller and more focused, though after factoring in net proceeds of $20.5 billion, reduced interest expense and D&A reduction, GE should only see 5 cents of 2020E EPS dilution from the BioPharma deal,” the analyst said.

Bank of America Merrill Lynch analyst Andrew Obin said the biopharma deal gives GE more financial wiggle room as it attempts to improve its core power business.

“We think another positive of the transaction is that GE’s pro forma FCF looks more robust over the coming two years, which should provide more flexibility for the company to turn around still-struggling Power,” Obin wrote in a note.

Bank of America is projecting that GE’s Power segment will burn through roughly $3 billion of additional cash in 2019.

Technical Troubles?

To make matters worse for GE investors, the stock’s 2019 rally may be running out of gas from a technical perspective. CNBC reported that the last two times GE stock crossed above its average analyst price target, the stock subsequently tanked, including a 45-percent drop from October 2018 highs to December lows. Last week’s rally pushed GE shares as high as $11.29, within close range of its consensus target of $11.62.

The stock closed Friday at $10.27 per share.

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Analysts React To GE's Mixed Quarter

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