Bernstein says to buy GE ahead of three-way split, sees stock rallying 20%
Bernstein initiated coverage of General Electric on Monday with a positive outlook ahead of the conglomerate's breakup. GE announced a three-way split on Nov. 9 that will divide the company into separate aviation, healthcare and energy operations. The company said it plans to spin off the healthcare unit by early 2023 and the energy unit by early 2024. "We join GE for the last stretch of the great unwinding. We are bullish on the stock, and ahead of consensus on mid-term operating margin expansion, particularly in the Renewables and Power segments," Bernstein's Brendan Luecke said. The firm set an outperform rating on the stock and a price target of $120, which is 20.7% higher than GE's closing price Monday. Shares of GE initially jumped after the news of the planned split, but then retreated . GE finished 2021 with a 9.3% gain, underperforming the S & P 500's nearly 27% rally. The stock is up 5.2% in 2022 and rose 0.7% in premarket trading Tuesday. Bernstein believes the breakup will help investors better assess the trajectories of each GE segment. "We view the spin as good news for investors. GE's component parts are easily scalable public companies, and improved line of sight to financials and end markets will only benefit shareholders," Luecke said. "There will be less noise in the numbers, and, we believe, greater conviction around the path to recovery for each business." In the near term, Bernstein said climate policy decisions could impact GE's renewables and power business, Covid could continue to impact aviation recovery and lingering supply chain challenges could affect the rest of the company. "It's been a long ride, but we don't think it's quite over yet," Luecke said. —CNBC's Michael Bloom contributed reporting.

General Electric logo is seen through magnifier in front of displayed Aviation, Energy, Healthcare words in this illustration taken, November 9, 2021. Dado Ruvic | Reuters