The market has been waiting for General Electric (GE) to finally act on its plan to exit consumer lending–and it finally has.
Bloomberg News General Electric filed to IPO its consumer-credit card business, which counts the Gap (GPS) and Wal-Mart (WMT) among its customers–with the company operating under the name Synchrony Financial.
Bernstein’s Steven Winoker calls the move “a net positive” for General Electric. He explains why:
[We] see the exit from North America Retail Finance as a net positive for GE over time, provided the price is right and capital is deployed wisely. Management has stretched further out to 2015 and beyond to find a story that will show they can offset the dilutive impact of the IPO and tax efficient share exchange. We think that provided management keeps their share buyback promises, investors will favor the higher industrial earnings weighting over time. There may be issues on the industrial side as well but overall, we still believe those earnings deserve a much higher multiple than “banking” earnings given the differences in relative volatility, leverage and ROE.
Still, Winoker isn’t a big fan of General Electric’s shares. For starters, its stock looks pricey trading at a 40% premium to tangible book for GE Capital and 17 times 2014/2015 earnings, and leaves little room for shares to rise. GE Capital, meanwhile, won’t start growing until 2016, Winoker says. All told, Winoker rates General Electric as Market-Perform with a $28 price target.
Shares of General Electric dropped 1.6% to $25.34 today, while 3M (MMM) fell 1.3% to $130.81 and Danaher (DHR) declined 1.8% to $74.43. Shares of the Gap dipped 0.1% to $41.27, while Wal-Mart finished off 0.8% at $74.93.
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