Wall Street’s Verdict
Wall Street's latest ratings on Solventum and GE HealthCare Technologies offer valuable insights into evaluating spinoff companies.
Analyst Ratings
Goldman Sachs analyst David Roman initiated coverage on Solventum, recently spun off from 3M, rating it as "Sell" with a $54 price target. GE HealthCare Technologies, formerly part of GE, received a "Hold" rating with an $87 price target.
Market Performance
Early trading saw Solventum shares fall 2.4% to $58.28 and GE HealthCare shares drop 1.2% to $77.48. Meanwhile, the S&P 500 and Nasdaq were down 0.3% and 0.2%, respectively.
Challenges and Growth
Solventum faces stagnant sales growth, with analysts expecting flat sales through 2025. Management plans to invest in sales, R&D, and acquisitions but must also manage significant debt, with a leverage ratio of 3.8 times EBITDA.
GE HealthCare, with more time since its spinoff, has reduced its debt-to-EBITDA ratio to below 2 times. Its 2024 sales growth is expected at 3%, lower than the 6% projected for Siemens Healthineers. Roman's "Hold" rating reflects this balanced outlook.
Investor Concerns
Investor caution persists due to parent companies retaining stakes — GE holds 31 million GE HealthCare shares, and 3M retains 20% of Solventum, indicating potential stock sales.
Success Story
GE Vernova, another GE spinoff, started debt-free and without retained stakes, leading to a 50% stock surge since its launch. Investors are optimistic about Vernova’s earnings growth, valuing it highly.
Investment Outlook
Investors should consider management's capabilities, business outlook, and challenges like debt and potential stock sales. With GE HealthCare nearing independence from GE's shareholding, it may become more attractive for growth-focused investors.
Current Ratings
Solventum has no "Buy" ratings among its four analyst reviews, with a $66 price target. GE HealthCare has 17 ratings with a 65% Buy ratio and a $93 price target. GE Vernova enjoys a 58% Buy ratio across 12 ratings and a $171 price target, recently closing at $177.32.
In conclusion, while Solventum faces significant hurdles, GE HealthCare and GE Vernova present more balanced or optimistic outlooks, with Vernova exemplifying a successful spinoff strategy.
