Macro

GE Vernova Soars 19%, 3M's Solventum Dips 30% Post-S&P Entry

S&P 500 reshuffle includes 3M, GE spin-offs, sparking mixed investor reactions over their market valuations and future prospects.

By Athena Xu

4/3, 17:20 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
article-main-img

Key Takeaway

  • GE Vernova Inc. surged 19% post-spinoff, outperforming the S&P 500, while 3M's Solventum Corp. fell nearly 30% amid debt concerns.
  • Analysts recommend caution with both spinoffs; GE Vernova seen at fair valuation and Solventum weighed down by $8 billion debt.
  • Despite mixed analyst reactions, both companies' significant market caps warranted their inclusion in the S&P 500 index.

S&P 500 Index Reshuffle

The S&P 500 index, a key indicator of the U.S. stock market's health, is set for a notable reshuffle with the inclusion of two significant spin-offs from established conglomerates, 3M and General Electric (GE). Solventum Corp, a healthcare spin-off from 3M, is slated to join the index on April 1, taking over the slot from VF Corp, the apparel giant behind Timberland and The North Face. Following this, GE Vernova, GE's sustainable and renewable energy spin-off, will be added to the S&P 500 on April 2, replacing Dentsply Sirona, a leading dental equipment manufacturer. This reshuffle not only reflects the changing landscape of the U.S. corporate sector but also places a spotlight on the growing sectors of healthcare and sustainable energy.

Market Dynamics Post-Spinoff

The market's reaction to the spin-offs of Solventum and GE Vernova has been mixed, showcasing the complexities involved in such corporate maneuvers. GE Vernova has seen a significant uptick, with a 19% increase in its stock price from the start of early trading, outperforming the S&P 500's flat performance during the same period. This contrasts sharply with Solventum, which experienced a nearly 30% decline in its stock price from the commencement of when-issued trading. This divergence highlights the market's varying confidence in the spin-offs' future prospects. GE Aerospace, the remaining entity of GE post-spinoff, has also seen a positive market response, with a 4% increase this week, adding to an 88% surge over the last year.

Analysts' Perspectives and Challenges Ahead

Analysts have offered mixed reactions to the spin-offs, with some expressing optimism, particularly for GE Vernova, citing its potential for greater flexibility and pursuit of high-growth strategies as a standalone company. JPMorgan Chase & Co. and RBC Capital Markets have provided favorable outlooks, with the latter being particularly bullish. However, caution has been advised for Solventum, primarily due to its heavy debt load of about $8 billion and a forecasted organic revenue growth between minus 2% and zero in 2024. Bloomberg Intelligence analysts have pointed out that Solventum faces steep hurdles, including a potential 2% revenue decline this year due to stock-keeping unit reorganization.

Street Views

  • Jim Osman, The Edge Consulting Group (Neutral on GE Vernova and Solventum):

    "GE Vernova is at a fair valuation, suggesting the timing for action might be more favorable down the line." "Caution is key [on Solventum], given its leverage is higher than peers."

  • JPMorgan Chase & Co. Analyst for GE Vernova (Neutral on GE Vernova):

    "Advised clients to look for a slide in the shares to buy given that it’s trading near the firm’s $141 year-end price target."

  • RBC Capital Markets Analyst for GE Vernova (Bullish on GE Vernova):

    "Touting a greater flexibility as a standalone company to pursue high-growth strategies."

  • Spin-Off Research Analyst for GE Vernova (Neutral on GE Vernova):

    "Started coverage on the energy unit with a hold recommendation and a $145 price target."

  • Spin-Off Research Analyst for Solventum (Bullish on Solventum):

    "[Rated] Solventum a buy."

  • Edward Jones Analyst for Solventum (Neutral on Solventum):

    "[Assigned] it a hold."