Why General Electric shares jumped higher on Thursday

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What happened

Actions of the industrial giant General Electric (NYSE: GE) climbed 5% by 3:05 p.m. EDT Thursday on news that the company will make its largest acquisition in at least three years.

So what

Ultrasound maker BK Medical, “a leader in advanced surgical visualization,” is the target, GE said in a press release.

GE will invest $ 1.45 billion in cash for the acquisition and integrate BK Medical into GE’s $ 3 billion healthcare business. While ultrasound is most often used to diagnose conditions, BK Medical products are used to show surgeons what is going on in a patient’s body before surgery, and “to guide clinicians through mini surgeries. -invasive and robotic “, providing” real-time surgical visualization. “

Image source: Getty Images.

Now what

As to what the transaction means for GE, the company said it expects BK Medical to generate rapid revenue growth along with expanding margins and growing free cash flow. a quantified return on invested capital. “

To put these claims in context, GE has suffered from declining revenues for five consecutive years, although its profit margins have started to recover after the pandemic year of 2020 this year. The company’s healthcare division is already its best performer, with an operating profit margin of 17% last year. Free cash flow at GE is positive again – around $ 700 million – but a little more wouldn’t hurt. However, the best news from this announcement is probably management’s belief that BK Medical will deliver strong returns on investment.

According to data from S&P Global Market Intelligence, GE’s ROIC for the past 12 months is only 0.5%.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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