Stansberry Research

The GEHC Spinoff

TradeSmith Daily

In August 2022, we shared how General Electric (GE) was spinning off its healthcare unit into its own publicly traded company, which could unlock value for shareholders. 

The spinoff is complete and GE HealthCare (GEHC) has been publicly trading since Jan. 4, so we thought now was the perfect time to catch up on the latest news and, most importantly, the potential investable opportunities.  

“I Love It When a Plan Comes Together” — John “Hannibal” Smith, “The A-Team”  

After market close on Tuesday, Jan. 3, the board set in motion that every GE shareholder would receive one share of GE HealthCare (GEHC) for every three shares of GE they owned.  

The very next day, from a manufacturing facility in Waukesha, GE HealthCare became the first Wisconsin company to ring the bell remotely, marking the start of the trading day. And GEHC officially began trading on the Nasdaq. 

GEHC wasted no time in claiming a spot on the S&P 500, bumping Vornado Realty Trust (VNO) down to the S&P Midcap 400. 

This newfound independence resulting from a spin-off generally increases the growth potential of the spun-off companies because of the smaller size and success-motivated management.  

These companies often turn out to be good investments.  

GEHC Arrives Flush with Cash 

Despite headwinds facing some factions under the GE umbrella, the healthcare division has remained strong.  

By spinning it off, a brand new $18 billion revenue-generating company with valuations ranging from $45 billion to $65 billion, has burst into the market for investors’ consideration. 

GE HealthCare has the potential for continued growth due to the strength of its Imaging business, which accounts for nearly half its annual revenue. Unburdening itself from the other divisions means the company will possess the agility to take advantage of timely opportunities within the healthcare space. 

GE HealthCare is already established in more than 160 countries and supports close to 51,000 employees worldwide.  

Serving a billion patients per year, the company has an installed base exceeding 4 million pieces of equipment spanning the spectrum of its four business segments: Imaging, Ultrasound, Patient Care Solutions, and Pharmaceutical Diagnostics. 

To help achieve dominance on these core fronts, former Vice President of Machine Learning and Chief Medical Officer at Amazon and Amazon Web Services Dr. Kass-Hout was named Chief Technical Officer (CTO) on Thursday, Jan. 5. Dr. Kass-Hout was the FDA’s first Chief Health Informatics Officer, serving two terms under the Obama administration.  

Room to Grow 

Starting off 2023, GE HealthCare begins with nearly $1.8 billion in cash, with net debit sitting around $8.4 billion, and a solid enough debt-to-EBITDA ratio to qualify as investment-grade. 

If you’re not familiar, debt-to-EBITDA quantifies a company’s ability to pay down incurred debt.  

If the analysts determine the ratio is too high, it might indicate the company would have trouble paying off its debt – which is NOT the case in this instance. 

The next planned spinoff of will be of its gas and wind energy businesses in early 2024. 

After that, GE will continue as GE Aerospace, an aviation-focused business, with high growth potential over the next couple of years as demand for equipment and services continues to grow, as the company projects.  

Deloitte and Edge Consulting Group found that between 2000 and 2014, spinoff stocks generated a 22% return in the first 12 months of trading. That’s even better than the 14% return of the parent company that performed the spinoff. 

As of this writing, GEHC is up 12% in 2023, and GE is up 21.75%.  

We’ll keep our eye on this one and update you as developments arise with the spinoff of GE Vernova and GE Aerospace as well. 

Take care, 

Team TradeSmith 

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