GE Appliance Spinoff Just a Start, Says Lehman; Needs To Ditch Money, Too

Lehman isn’t satisfied with General Electric’s (GE) proposed spinoff of its appliance division. It wants GE to ditch GE Money, which contributes about 15% of the congolomerate’s revenue and is distinct from its slightly larger commerical finance division. Lehman thinks this streamlining process could constrain EPS growth.

We believe GE is in the midst of a continued portfolio transition we believe could benefit longer term growth and shareholder value, but that could defer double digit earnings growth until 2010

We believe the future GE “core” is defined by Infrastructure, Healthcare, Commercial Fin, NBCU and potentially Enterprise Sol. We see GE exiting perhaps all of GE Money and C&I too. The proposed sale of Appliances announced yesterday may be just the beginning. This evolution could create near term headwinds for EPS growth.

GE currently trades below the historical valuation range, due in part to hangover of investor concern created by the disappointing 1Q results, and a higher-than-normal risk discount given the recent financial market turmoil.

Lehman reiterates it 1-Overweight rating and $37 price target. Lehman reduces EPS estimates for FY09 to $2.35 from $2.42.

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