Analysts turned bullish
On February 26, General Electric (GE) shares rose after several analysts provided positive comments about its recent deal. General Electric will sell its BioPharma business unit to Danaher (DHR). General Electric shares closed 2.5% higher on February 26.
On February 25, General Electric made a surprise announcement that Danaher agreed to buy its BioPharma business for a total consideration of $21.4 billion. According to the agreement, Danaher will pay $21 billion in cash and assume some of General Electric’s pension liabilities. Both of the companies expect to close the deal in the fourth quarter of 2019. On February 25, General Electric shares rose 6.3% due to the announcement.
Analysts think that the latest asset sale announcement will likely help General Electric lower its debt and strengthen its balance sheet. As of December 31, General Electric had long-term debt over $110 billion.
The deal has made analysts optimistic about General Electric. Analysts don’t think that there’s more downside risk to the stock price. According to CNBC, William Blair analyst Nicholas Heymann said, “In our opinion there is no fundamental case for GE’s share price to have further downside risk.”
According to CNBC, Peter Lennox-King of UBS thinks that the deal has brought a considerable cash flow which now “effectively puts the leverage question to bed.” The analyst raised his target price on the stock to $12.
Analysts polled by Reuters have provided a consensus “buy” recommendation on General Electric stock. Four out of 19 analysts recommended a “strong buy,” five recommended a “buy,” seven recommended a “hold,” and two recommended a “strong sell.”
The stock’s one-year target price of $12.28 shows a potential return of 15.2%. The stock witnessed sharp upward movement in its target price after the BioPharma and Danaher deal. Before the announcement of the agreement, General Electric stock had a target price of $11.69.
General Electric stock has risen 46.5% year-to-date and significantly outperformed the returns of other industrial conglomerates (XLI). Honeywell International (HON) and 3M (MMM) have returned 16.5% and 9.9%, respectively, during the same period.