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The Case for Holding -- Not Selling -- GE's Healthcare Stock -- Barrons.com

Barron's · 01/06/2023 20:13
By Al Root

A healthcare giant has been born: General Electric completed the spinoff of its healthcare business, GE HealthCare Technologies, on Wednesday, with the shares trading on the Nasdaq under the ticker GEHC.

GE investors face a choice: keep shares in the healthcare business they received in the spinoff, or cash out. GE HealthCare shares closed at $60.49 on Wednesday, up about 8%, and GE traded at $70.20, off about 17%. GE shareholders got one share of GE HealthCare for every three GE shares held, meaning that roughly $20 a share in GE stock value is now represented by GE HealthCare shares. Putting GE HealthCare back into GE gets investors $90.36 for the value of all GE investments. GE shares closed at $84.98 on Tuesday, so investors' total stake in GE investments rose about 6% on Wednesday -- not bad.

With 455 million shares outstanding, GE HealthCare has a market cap of $25.5 billion. Net debt is about $8.4 billion, giving it a total enterprise value of almost $34 billion, roughly 10 times expected 2022 earnings before interest, taxes, depreciation, and amortization, or Ebitda. Siemens Healthineers, a GE HealthCare peer, trades for about 16 times estimated 2022 Ebitda. That's a big enough discount to hold on to GE HealthCare stock.

Barron's has argued that the breakup of GE into three business -- healthcare, power generation, and aerospace -- would create shareholder value. But that doesn't mean GE HealthCare stock will quickly rise. Investors have to get to know the business. And healthcare analysts -- not GE's usual industrial analysts -- will be launching coverage in the next few weeks. Be patient.

Write to Al Root at allen.root@dowjones.com

Last Week

Taking Stock of Jobs

Another short holiday week that began the way 2022 ended: with declines. Tesla stock plunged over 12% as the EV maker set a record for deliveries but missed expectations. Apple also slid; its market value is now more than $1 trillion below its peak. Federal Reserve minutes from December showed no signs that the central bank is considering easing. Amazon.com and Salesforce announced big job cuts, but ADP and nonfarm jobs data both beat expectations, though wage growth slowed. Stocks rallied to finish the week, with the Dow industrials up 1.46%, to 33,630.61; the S&P 500 up 1.45%, to 3895.08; and the Nasdaq Composite rising 0.98%, to 10569.29.

The House on Fire

The 118th Congress convened, with Republicans narrowly controlling the House and Democrats holding the Senate. The big drama: Would House GOP leader Kevin McCarthy win the speaker job? On Tuesday, McCarthy lost three votes -- the first multiple votes since 1923 -- as 20 right-wing members held out. He then lost 10 more votes through Friday afternoon, when he neared a win after agreeing to changes that would weaken the speakership. The next vote: Friday night, after we went to press.

China in Crisis

The Chinese economy likely contracted in the fourth quarter, according to a survey from China Beige Book International, as Covid surged and property prices skidded. The company estimated growth of only 2% in 2022. President Xi Jinping emerged publicly to exhort "persistence" in the crisis. Next up: fears of further Covid spread during the Lunar New Year holiday.

Russia Setback

Moscow said Ukraine had killed 89 Russians, mostly conscripts, in a missile attack; Ukraine estimated more than 400 dead; Russian military bloggers, over 600. The attack hit a building housing soldiers next to an ammo depot. Russia blamed cellphone use by conscripts for the strike. France, Germany, and the U.S. agreed to supply combat vehicles to Ukraine. In Europe, a warming trend drove natural-gas prices to their lowest level since the war began.

Britain on Strike

The U.K. began the year as it ended: with labor actions, including a five-day strike over pay by rail employees. In December, postal workers, bus drivers, barristers, nurses, and paramedics had walked out, also over pay. U.K. inflation is at 10.7%.

Annals of Deal Making

General Electric spinoff GE HealthCare Technologies began trading as part of the S&P 500...Former FTX CEO Sam Bankman-Fried pleaded not guilty to eight criminal charges in a Manhattan federal court. The trial is set for Oct. 2... Coinbase Global reached a $100 million settlement with New York state regulators over anti-money-laundering failures...Moderna bought Japanese biotech OriCiro Genomics for $85 million...Open AI, the creator of ChatGPT, is in talks with investors that could value it at $29 billion.

Write to Robert Teitelman at bob.teitelman@dowjones.com

(END) Dow Jones Newswires

January 06, 2023 20:13 ET (01:13 GMT)

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