GE Stock Is Dropping While GE Vernova Rises. Short Seller Jim Chanos Could Be Why. -- Barrons.com

Dow Jones03-29

Al Root

The soon-to-be spun-off power generation business of General Electric -- GE Vernova -- is getting more expensive, while the remaining business, GE Aerospace, is getting cheaper. Comments from a famed short-seller have something to do with that.

The spinoff will be completed on April 2, but trading on a so-called when-issued basis began Wednesday, offering an early look into how investors will value the stock.

Vernova shares rose about $16 from early levels to close at $131.25 apiece on Wednesday. Shares were up 1.5% at $133.15 in midday trading on Thursday.

GE shareholders get one share of Vernova for every four GE shares held. That means that the value of Vernova in GE stock today is about $33.29. That leaves $141.89 per GE share for GE Aerospace -- the jet engine business that will be left over after GE Vernova is spun out.

The GE Aerospace value is down from $147.31 at Wednesday's close, off almost 4%. That's because GE shares were down 2.7% at $175.23 in midday trading, while the S&P 500 was up 0.1% and the Dow Jones Industrial Average was flat.

GE stock is likely to be more volatile than average around the spin. Shares rose almost 4% Wednesday. But comments from Jim Chanos might be weighing on investor sentiment.

Chanos is known for his bets against stocks he feels are overvalued or face significant issues. Thursday, he tweeted from his X handle @WallStCynic about "insane valuations" in some industrial stocks, including GE and Eaton.

At current levels, GE Vernova is trading for about 10 times estimated 2025 earnings before interest, taxes, depreciation, and amortization, or Ebitda. That isn't an above-average valuation.

GE Aerospace, however, trades for about 26 times Wall Street's 2025 earnings estimates. The S&P trades for about 19 times 2025 numbers.

Eaton stock trades for about 28 times estimated 2025 earnings. Eaton sells electrical components and has benefited from investment in artificial-intelligence data centers, the rise of electric vehicles, and efforts to move manufacturing back into the U.S.

All of those things require electricity. More demand for electricity means more business for Eaton.

Eaton shares were down a little in midday trading.

GE Aerospace, for its part, is benefiting from record demand for commercial airplanes. Both Eaton and GE Aerospace are expected to increase their earnings faster than the market for the coming few years. That's the bull case anyway.

High valuations would be part of any bear case. Chanos declined to disclose any short positions but said he is skeptical of current valuations.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 28, 2024 12:33 ET (16:33 GMT)

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