Gordon Haskett: Will GE Have Equity Value Once Asset Sales Are Over?

It wasn’t long ago that General Electric Co. GE was one of the largest blue chip industrial stocks in the U.S.

On Wednesday, one Wall Street analyst said that once GE divests its oil and gas, health care and transportation businesses, the remaining company may have little or no value.

The Analyst

Gordon Haskett analyst John Inch reiterated an Underperform rating on GE with a $7 price target.

The Thesis

The asset sales may be good news for GE’s liquidity problems in the near-term, but will also eliminate all of the company’s main cash-generating businesses, Inch said in a note.

Investors can expect proceeds of between $71 billion and $80 billion from GE’s upcoming asset sales, the analyst said. 

GE privately filed paperwork for a GE Healthcare IPO in December. CNBC reported that the IPO will likely come sometime in mid-2019.

Even after subtracting those projected proceeds from Inch’s estimates for GE’s remaining on- and off-balance sheet liabilities, the analyst estimates the remaining company will still have between $144 billion and $203 billion in liabilities and only about $70 billion to $78 billion in industrial assets.

“After combining with GE Capital assets of $111-129 billion and aforementioned total company remaining debt plus other liabilities, this results in a market value for GE equity of [negative] $2.47 to just over $7/share, or a midpoint of just over $2/GE share." 

It may be prudent for GE to raise equity capital to shore up its balance sheet, Inch said, adding that the process would understandably be difficult and dilutive given GE’s share price.

Price Action

GE stock was trading up 0.75 percent at $8.78 at the time of publication Thursday and is now down about 69 percent in the last three years. 

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