News broke on Wednesday evening that GE Healthcare will enter the S&P 500 when it is spun off from General Electric (GE) and begins trading at the Nasdaq under the symbol GEHC. This happens next Wednesday, January 4, 2023.
In a chain reaction of events, GEHC will knock Vornado Realty Trust (VNO) down to the S&P MidCap 400. VNO will then knock RXO, Inc (RXO) down to the S&P SmallCap 600. Lastly, The Joint (JYNT) will be leaving the S&P 600 with no place to go.
Background
The larger news that industrial conglomerate General Electric would ultimately break into three separate, independent, publicly traded companies had broken in November of 2021. It was not until Wednesday, November 30, 2022 that the Board of GE would approve the separation of GE Healthcare.
GE shareholders will get one share of GE Healthcare for every three shares of GE held. GE currently has about 1.1B shares outstanding. This should put GEHC's share count at about 367M as of next Wednesday.
After spinning off the healthcare segment, GE expects to create another new company probably in early 2024 that combines GE Power, GE Renewable Energy and GE Digital under one roof to be known as GE Vernova. What's left at that point will retain the GE brand and focus on Aviation.
Little more than a week later, the Healthcare division of GE held a pre-split Investor Day. GE Healthcare expects organic revenue growth of mid-single digits, adjusted EBIT margin in the high-teens to 20%, and free cash flow conversion of 85%+. The company will focus on screening, diagnostics, therapy, and monitoring. The business will consist of four segments... Imaging, Ultrasound, Patient Care Solutions, and Pharmaceutical Diagnostics. GE Healthcare will be led by CEO Peter Arduini. Larry Culp will remain CEO and Chair of GE.
For the Nine Months Through September 30th!
First, next week's spinoff...
The GE Healthcare segment had experienced 2% year over year growth in orders worth $14.582B, producing revenue of $13.494B (+3%). Segment profit came to $1.901B, down from $2.203B for the year ago comp on segment profit margin of 14.1%, which was down from 16.8%.
Now, for the segments that will comprise GE Vernova...
The GE Power segment had experienced 2% year over year growth in orders worth $12.384B, producing revenue of $11.233B (-8%). Segment profit came to $524M, up from $416B for the year ago comp on segment profit margin of 4.7%, which was up from 3.4%.
The GE Renewable Energy segment had experienced a 28% year over year contraction in orders worth $9.628B, producing revenue of $9.564B (-17%). Segment profit/loss came to $-1.786B, down from $-484M for the year ago comp on segment profit margin of -18.7%, which was down from -4.2%.
Check this out...
The GE Aerospace segment had experienced 20% year over year growth in orders worth $21.425B, producing revenue of $18.434B (+21%). Segment profit came to $3.341B, up from $1.164B for the year ago comp on segment profit margin of 18.1%, which was up from 10.9%.
I don't even see the above as some kind of contest. The Healthcare business has been a slow grower with declining margins. The "Vernova" businesses appear to be in a serious state of decline. Aerospace or Aviation is the crown jewel of the firm. This is where the growth is. This is where the margin is.
Know What?
GE is set to report in late January. I would love to see what these segments did for the full year. Do I think investors need to run out and grab some GE ahead of next week's split? No. I do not. I think I can wait and see how it trades. As for what's left of GE for really all of 2023, you have the engine of the firm, aviation, but laden down with the parts of the firm that the legacy firm no longer considers worth running.
I do think that the legacy firm will probably be a great firm that attracts a lot of investment. You can maybe be in GE Healthcare. Don't expect fireworks, but being in the S&P 50 does attract at a certain level of tracking investment. That said, I am not sure if owning GE Aviation a year ahead of the second split is worth owning the power and renewable energy segments.
GE is not a lost cause. Not in the least. I just think investors can be patient.
