GE Healthcare reported a mixed quarter before Wednesday’s opening bell. While revenue barely missed, an earnings beat together with numerous other positives pushed the stock higher. Revenue rose slightly below 1% 12 months over 12 months to $4.86 billion within the third quarter, just short the $4.87 billion expected, in response to analyst estimates compiled by LSEG. Organic revenue growth of 1% matched expectations. Adjusted earnings per share in Q3 jumped 15% to $1.14, outpacing the LSEG consensus estimate of $1.05, because of ongoing cost optimizations, particularly on the gross margin level. Management raised the midpoint of full-year earnings guidance despite the continued in weakness in China that has been hampering top-line organic growth. GEHC YTD mountain GE Healthcare YTD We also like how 2025 is organising for GEHC, with stimulus in China still working its way into the market, a newly approved drug utilized in radiology, Flyrcado, becoming commercially available, and indications of market share gains based on a readthrough from a competitor. We’re bumping up our price goal to $95 per share from $92 but keeping our 2 rating on the stock. Bottom Line Results were mixed, nevertheless it comes as no surprise that the quarter was negatively impacted by weakness in China. Excluding business on the planet’s second-largest economy, reported ex-China sales were up about 5%, with ex-China organic order growth up 4% versus the prior 12 months. Within the U.S., CEO Peter Arduini commented on the decision that “strong orders and sales were driven by multiyear enterprise deals, primarily made up of imaging products, particularly PET and CT systems, that are critical to the diagnosis and treatment of chronic diseases. We’re pleased with the progress that we’re making to secure long-term partnerships, which is foundational to our growth strategy. One other revenue driver within the quarter was PDx [Pharmaceutical Diagnostics segment]. The team continues to deliver for purchasers and we have seen PDx reports seven quarters of high-single-digit or double-digit organic revenue growth.” On China, Arduini added, “We proceed to watch the market, which has been slow to get better. Coordination of stimulus funding is taking longer, so customers are still delaying normal purchasing. That is impacting overall growth within the China market within the near term. Bottom line is we proceed to view this as a brief challenge and over the mid to long run, we see China as a horny market.” Despite the China headwind, management is taking in orders faster than they will deliver on them, leading to a 1.04x book-bill ratio within the quarter (remember, anything above a ratio of 1 is a positive sign of future growth). Consequently, the team exited the quarter with a $19.6 billion backlog, representing a $1.2 billion increase versus the year-ago period and a $600 million increase on a sequential basis. GE Healthcare Why we own it : GE Healthcare is the worldwide leader in medical imaging, diagnostics, and digital solutions in health care. Its split from General Electric in 2023 enabled the now-standalone company to take a position more aggressively in R & D, resulting in latest product innovations, especially in artificial intelligence. The mixture of latest, higher-priced products together with the optimization of its business post-split creates an underappreciated margin expansion story. The rollout of latest Alzheimer’s disease therapies is one other longer-term tailwind. Competitors : Philips and Siemens Most up-to-date buy : May 29, 2024 Initiated : May, 17, 2023 We’re also looking forward to hearing more from management at the corporate’s investor day event on Nov. 21. Among the many topics in focus can be management’s comments on Flyrcado, which is an injection PET radiotracer for enhanced diagnosis of coronary artery disease that was recently approved by the U.S. Food and Drug Administration. Management called it a game changer. On the decision, Arduini said, “We estimate that there are around 6 million myocardial perfusion imaging procedures per 12 months within the U.S., of which we consider PET MPI [myocardial perfusion imaging] makes up about 5% to 10%. Revenue will ramp over time, and we’re working with health-care providers to construct out the capability required to enable greater access to PET for cardiology. We see a possibility for revenues of greater than $500 million annually from this one proprietary molecule once the health system infrastructure is in place.” Commentary In GE Healthcare’s Imaging segment — home to products reminiscent of MRI and CT machines — quarterly revenue was down about 1% organic versus the year-ago period as ongoing weakness in China was only partially offset by growth within the U.S. That said, higher prices, efficiency gains and a good sales mix provided for a 200 basis point expansion within the segment’s EBIT margin. “We proceed to see strong demand, particularly within the US, with opportunities in replacements, upgrades and services,” CFO James Saccaro said on the post-earnings conference call. Advanced Visualization Solutions segment — formerly Ultrasound — revenue within the third quarter was largely unchanged year-over-year as a rise in U.S. sales volume was entirely offset by weakness in China. The segment’s earnings before interest and taxes (EBIT) margin contracted 190 basis points as a result of an unfavorable sales mix. Patient Care Solutions (PCS) segment — covering a spread of medical devices like electrocardiogram machines and consumables used to take blood pressure readings, amongst others — saw sales increase 2% organically as management was capable of increase production capability and factory output rates and in turn work through the segment’s backlog. Efficiency gains allowed for a 10-basis-point improvement within the segment’s EBIT margin. Saccaro said on the decision, “The team has reduced late backlog all year long, driven by lean principles to extend capability. These actions will allow for greater achievement flexibility in future quarters.” Pharmaceutical Diagnostics (PDx) segment — utilized in radiology and nuclear medicine to deliver more precise diagnoses — was particularly strong, delivering segment revenue growth of seven% organically. EBIT margin for PDx improved 270 basis points driven by a rise in procedure volumes, price hikes and latest product introductions. That is the unit that Flyrcado can be housed under. Guidance GEHC sees full-year organic revenue growth trending toward the lower end of the previously provided 1% to 2% range, with management citing “continued China market softness” because the foremost cause. The Street was in search of a 1.5% advance versus the prior 12 months. Then again, the team raised the lower end of its full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) goal range, now targeting 15.8% to 16% versus a spread of 15.7% to 16% previously, which compares to a 15.8% consensus estimate. Adjusted full-year EPS is now expected to be between $4.25 and $4.35, a rise on the low end from the prior range of $4.20 to $4.35 per share. That compares to a consensus estimate of $4.25. Free money flow was reiterated at roughly $1.8 billion. 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An examination with a CT scanner is ready within the emergency room of the university hospital (UKJ) in Jena, Germany. The GE Healthcare scanner known as the Revolution CT.
Martin Schutt | picture alliance | Getty Images
GE Healthcare reported a mixed quarter before Wednesday’s opening bell. While revenue barely missed, an earnings beat together with numerous other positives pushed the stock higher.
