GE Healthcare is a quiet winner—new catalysts just arrived

GE Healthcare’s quiet outperformance is becoming increasingly hard to ignore — its new drug for radiology could improve diagnosis of heart disease, which could help the club’s stock make more noise. Wells Fargo analysts said in a note to clients on Sunday that GE Healthcare’s diagnostic agent Flyrcado “may be the most undervalued asset owned by a large medical technology company.” Flyrcado received approval from the U.S. Food and Drug Administration late Friday to test for coronary artery disease, with plans to launch in select U.S. markets in early 2025 before expanding availability. Wells Fargo said Flyrcado has sales potential of at least $1 billion in its peak year and could add about 80 cents to earnings per share by 2028. This year’s projected $4.25. “It’s incredible,” Jim Cramer said Monday of Wells Fargo’s optimism about Flyrcado. GE Healthcare has been a stock we’ve struggled with since its sharp decline in the second quarter. The FDA approval and upcoming launch of Flyrcado has shed light on GE Healthcare’s diagnostics business, which is part of our investment thesis but hasn’t been top of mind for investors lately. Instead, the market appears to have been focused on GE Healthcare’s ability to benefit from the Federal Reserve’s interest rate cuts, which lower borrowing costs and make it easier for hospitals and other medical institutions to finance the purchase of expensive MRI and CT machines. This dynamic, combined with positive China stimulus announcements in recent days, makes GE Healthcare one of our top-performing stocks in the third quarter. Shares of the stock rose more than 1% on Monday, pushing gains in the July-September period to more than 19%, while the S&P 500 healthcare sector and the broader market index as a whole rose about 5%. We reduced our position in GE Healthcare after hitting a new all-time high on Friday, locking in hard-earned profits in a stock prone to underperforming. Still, the fundamentals for the business are looking increasingly attractive, and Friday’s small sell-off amid a series of overbought market days isn’t a sign of our conviction, according to the S&P Short-Term Oscillator. “I didn’t expect – and I should have expected – that the equipment here is so expensive that you need to finance it. So once interest rates come down, you can get a return,” Jim admitted on Monday. “The bottom line is, now we have the reason I think it’s important: diagnostics.” When we launched in May 2023, the most exciting diagnostic seemed to be Vizamyl, which is used to detect Alzheimer’s disease. Vizamyl has gained traction in recent years as emerging Alzheimer’s treatments – Biogen and Eisai’s Leqembi and Club owner Eli Lilly’s Kisunla – gain greater adoption. The momentum in the first quarter should continue. Clearly Flyrcado deserves attention as well. Flyrcado is what is called a radioactive tracer. It is given to patients through an intravenous injection before they undergo a positron tomography scan, or PET scan. Flyrcado shows how blood flows through the heart muscle in patients with known or suspected coronary artery disease, the most common type of heart disease in the United States, according to the Centers for Disease Control and Prevention (CDC). The main imaging technique currently used to diagnose coronary artery disease is single-photon emission computed tomography, often abbreviated to SPECT. SPECT and PET scans are both part of the field of nuclear medicine, but they use different types of radioactive tracers to aid in the diagnostic process. GE Healthcare says PET scans using the Flyrcado have better diagnostic results than SPECT scans. Wells Fargo analysts wrote that this makes Flyrcado a better option for “difficult-to-image patients, such as those with a high body mass index (BMI) and women.” Because of its half-life of 109 minutes, Flyrcado can also be produced in off-site pharmacies and shipped to hospitals and imaging centers. According to the company, this is one of its advantages over existing radioactive tracers used in scans to detect heart disease. “Because of these advantages, we expect Flyrcado to cannibalize current PET tracers over time,” Wells Fargo said. Analysts at Stifel are also optimistic about Flyrcado’s potential. Analysts wrote in a letter to clients on Sunday that the approval of the radioactive tracer “is a clear incremental positive catalyst for GEHC and with no (Flyrcado) contribution in today’s consensus number, it appears likely to GEHC 2025 Outlook Generates Incremental Positive Factors for Growth”. Stifel raised its price target on GEHC to $102 from $100 per share. Looking ahead to next year, proposed changes to how Medicare pays for diagnostics like Flyrcado could take effect, boosting its diagnostics business overall. GE Healthcare’s China business may also see a recovery due to the rollout of healthcare-focused stimulus spending. Management is expected to discuss these two additional drivers more at its investor day on November 21. Then consider buying more shares. We are reviewing our $92 price target as the stock is currently trading above that level. (Jim Cramer’s Charitable Trust is a long-term holding of GEHC. See here for a full list of stocks.) As a subscriber to Jim Cramer’s CNBC Investing Club, you Receive trade alerts before Jim Cramer 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. 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The GE Healthcare booth will be unveiled on the eve of the 2022 China International Fair for Trade in Services (CIFTIS) to be held at the National Convention Center in Beijing, China on August 28, 2022.

Yi Haifei | China News Service | Getty Images

GE HealthcareIts quiet outperformance is becoming increasingly difficult to ignore – its new drug for radiology could improve diagnosis of heart disease, which could help the club’s stock make more noise.

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