GEHC gives reason to look beyond China’s temporary woes, shares reverse higher | Wilnesh News
GE Healthcare reported mixed second-quarter results Wednesday morning, and its shares initially fell sharply. The stock then reversed higher as the post-earnings conference call took place. Management has made it clear that they believe the weakness in the Chinese market is temporary and see many other levers that can be leveraged to grow earnings. Revenue rose less than 1% annually to $4.84 billion, missing estimates of $4.87 billion, according to analyst estimates compiled by LSEG. Organic revenue growth was 1%. Adjusted earnings rose 8.7% to $1.00 per share, beating estimates by 2 cents. GE Healthcare Why We Have It: GE Healthcare is a global leader in medical imaging, diagnostics and digital solutions. Its spin-off from General Electric in 2023 will allow the now independent company to invest more aggressively in research and development, leading to new product innovation, particularly in artificial intelligence. The combination of new, higher-priced products and optimization of the post-spin business creates an undervalued profit expansion story. The launch of new Alzheimer’s treatments is another long-term driver. Competitors: Philips and Siemens Last Buy: November 1, 2023 Launched: May 17, 2023 Bottom Line This wasn’t the best performance for Club Holdings GE Healthcare. China was the main source of weakness in the quarter and the main factor that forced management to revise down its full-year organic growth outlook. Sadly, we’re not surprised. We downgraded our holdings in GEHC on Tuesday after rival Philips reported results and cited weakness in China. Economic stimulus from the Chinese government is expected to help boost business. But the companies were slow to obtain information about the package and delayed orders. While it’s still early days, the team is hopeful about the growth potential of amyloid agents for imaging Alzheimer’s patients as Eli Lilly’s Kisunla treatment gains approval, joining Eisai and Biogen Leqembi join forces to fight this spiritual disease. At the same time, GE Healthcare management continues to execute at a high level within what they can control, and they are looking for more ways to improve efficiency and, in turn, profitability. That’s why GEHC was able to turn positive by the end of the call from being down about 9% at the time of publication. The stock was up nearly 4% in afternoon trading. We reiterate our “wait for pullback” 2 rating and target price of US$92 per share. GEHC YTD Mountain GE Healthcare YTD quarterly comments organic orders grew 3%. Investors tend to focus on order books because they indicate customer demand. Management said on the conference call that China’s growth was hampered by 3 percentage points, which means global revenue outside the world’s second-largest economy grew 4% and orders grew 6%. Despite the soft market in China, our earnings before interest and tax (EBIT) margins maintained healthy growth and reached levels above Wall Street expectations. GEHC still beat profit expectations despite revenue missing expectations. On the call, the team noted that expansion was driven by improved gross margins due to improved productivity and price dynamics. We believe the company’s ability to expand margins is one of the most undervalued aspects of Wall Street’s GEHC investment thesis. Another measure of future demand is backlog, which stood at $19 billion in the second quarter, up from $18.7 billion at the end of the first quarter. The company’s order-to-bill ratio, a measure of orders received relative to sales, was 1.06, up from 1.03 in the first quarter and up from 1.04 in the second quarter of 2023. a sign of future growth. This means more orders were received than revenue was recorded. Revenue at GE Healthcare’s imaging unit – home to products such as MRI and CT machines – fell nearly 1% compared with the same period last year. (Organically flat.) Imaging EBIT margin improved 40 basis points to 11% through productivity and price improvements. Margins subsequently expanded by 130 basis points due to higher trading volumes. Management said that “new product introductions are driving strong growth in U.S. product demand.” Ultrasound revenue fell nearly 2%. Organic decline was 1%. Ultrasound’s EBIT margin contracted 120 basis points to 21.6%, with management citing China as the main source of weakness. Patient Care Solutions (PCS) sales increased slightly. (Organic growth was 1%.) The segment covers a range of medical devices, such as electrocardiographs and consumables for taking blood pressure readings. PCS’s EBIT margin contracted 90 basis points to 10.1%. The company blames this on its product mix. But productivity actions offset inflation. Drug diagnostics (PDx)—used in radiology and nuclear medicine to provide more precise diagnoses—are particularly strong. Division revenue grew 12.5%. (Organic growth 14%). PDx’s EBIT margin improved 450 basis points to 31.2% due to higher sales volumes, productivity and pricing. Chief Financial Officer Jay Saccaro said on the call: “We are encouraged by the positive developments in the molecular imaging market. We saw continued acceleration of Vizamyl doses delivered in the United States in the second quarter. Those sales tripled.” Vizamyl is a Amyloid imaging agent, suitable for brain PET imaging, can estimate plaque density in adults with Alzheimer’s disease. Arduini added: “Vizamyl dosage continued to grow in the U.S. in the second quarter, and with the recent FDA approval of donanemab, we expect further adoption of our diagnostic amyloid PET drug. This contribution to sales growth will still be small, but let us Regarding sales potential in the next few years, Guidance GEHC updated its outlook for the rest of the year, now predicting organic revenue growth of 1% to 2%, lower than the “approximately 4%” forecast previously provided and lower than Wall Street’s expectations of 3.4%. On the call, management blamed long-term weakness in the China market, with CEO Peter Arduini saying the company had “previously stated that the region would remain weak due to the challenging comparisons we face.” After negative sales growth in the first half, he continued: “At the time, we expected positive sales growth in the second half. Now, the longer rollout of new (Chinese) stimulus measures announced earlier this year is affecting the timing of orders and sales. . We expect sales to continue to grow in the second half of the year and the Chinese business will decline year-on-year. We expect the growth of the Chinese business to be negative this year, so we have lowered the company’s full-year organic revenue growth outlook and raised it to 15.7. % to 16%, higher than Wall Street expectations of 15.6%, even at the low end. The team cited further progress on “productivity and optimization initiatives.” Management reiterated its guidance for the company’s adjusted effective tax rate of 23% to 25%, earnings per share of $4.20 to $4.35, and free cash flow of approximately $1.8 billion. The team expects organic revenue growth of about 1% in the third quarter, with adjusted EBIT margin expansion “relatively similar” to the 57 basis points growth in the second quarter. Wall Street has been modeling an expansion of around 50 basis points. The team added that they “expect fourth-quarter year-over-year organic revenue growth and adjusted EBIT margin to be their strongest this year.” (Jim Cramer’s Charitable Trust Buys GEHC, LLY. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investing Club, you will receive trade alerts before Jim Cramer makes his trades. Jim waits 45 minutes after sending a trade alert before buying or selling stocks in his charitable trust portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing a trade alert before executing the trade. The investment club information above is subject to our Terms and Conditions and Privacy Policy and our Disclaimer. No fiduciary duty or obligation is created or created by any information you receive in connection with the Investment Club. No specific results or profits are guaranteed.
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GE Healthcare Shares initially fell sharply following mixed second-quarter results Wednesday morning. The stock then reversed higher as the post-earnings conference call took place.
