We’re raising GEHC price target, looking beyond mixed quarter, looking ahead to next year’s catalysts | Wilnesh News
Before the bell on Wednesday, GE Healthcare reported a mixed quarter. Despite a slight revenue decline, improving earnings and a number of other positive factors drove the stock higher. Third-quarter revenue rose just under 1% annually to $4.86 billion, slightly below estimates of $4.87 billion, according to analyst estimates compiled by London Stock Exchange Group (LSEG). Organic revenue grew 1%, in line with expectations. Due to continued cost optimization, especially optimization of gross margin levels, third-quarter adjusted earnings per share jumped 15% to $1.14, exceeding LSEG’s consensus estimate of $1.05. Although continued weakness in China’s economy hampered organic revenue growth, management raised the midpoint of its full-year profit guidance. GEHC YTD Mountain GE Healthcare YTD We also like GEHC’s 2025 plans, with China’s stimulus still making its way to the market, a newly approved drug for radiology, Flyrcado, starting commercialization, and signs of market share gains based on competitors’ read through. We raised our price target to $95 per share from $92, but maintained our 2 rating on the stock. Bottom-line results were mixed, but not surprisingly, the quarter was negatively impacted by weakness in China. Excluding business in the world’s second-largest economy, sales outside China increased by about 5% annually, and organic order growth outside China increased by 4% from the previous year. In the U.S., CEO Peter Arduini commented on the conference call: “Strong orders and sales were driven by multi-year corporate transactions primarily consisting of imaging products, particularly PET and CT systems, which are important for the diagnosis and treatment of chronic diseases. Crucially, it has achieved seven consecutive quarters of high single-digit or double-digit organic revenue growth. Regarding China, Arduini added: “We will continue to focus on a market that is slow to recover. The coordination of stimulus funds will take longer. time, so customers are still delaying normal purchases. This is affecting the overall growth of the Chinese market in the short term. “The most important thing is that we still think this is a temporary challenge. In the medium and long term, we think China is an attractive one.” market. Despite China headwinds, management was able to take orders faster than they could deliver them, resulting in a book-to-bill ratio of 1.04x for the quarter (remember, any ratio above 1 is a positive sign for future growth). As a result, the team ended the quarter with a backlog of $19.6 billion, an increase of $1.2 billion from the same period last year and a $600 million quarterly increase. 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 purchased: May 29, 2024 Launched: May 17, 2023 We also expect to hear more from management at the company’s Investor Day event on November 21. Topics in focus include management’s Flyrcado, an injectable PET radioactive tracer used to enhance the diagnosis of coronary artery disease, which was recently approved by the U.S. Food and Drug Administration. Management calls it a game changer. “We estimate that PET MPI (myocardial perfusion imaging) accounts for about 5% to 10% of the approximately 6 million myocardial perfusion imaging procedures performed annually in the U.S.,” Arduini said on the call. “The revenue will grow significantly and we are working with healthcare providers. , building the capabilities needed to make PET more widely available in cardiology.” Comments GE Healthcare’s imaging unit, home to products such as MRI and CT machines, saw quarterly revenue drop about 1% organically from the same period last year. Continued weakness in China was only partially offset by growth in the United States. The combination expanded the segment’s EBIT margin by 200 basis points. “We continue to see strong demand, particularly in the U.S., as well as opportunities for replacements, upgrades and service,” Chief Financial Officer James Saccaro said on a post-earnings conference call. Advanced Visualization Solutions The segment (formerly known as Ultrasound) third-quarter revenue was essentially unchanged from the same period last year, as higher U.S. sales were fully offset by weaker sales in China. The segment’s earnings before interest and tax (EBIT) margin contracted 190 basis points due to unfavorable sales mix. The Patient Care Solutions (PCS) unit – which encompasses a range of medical equipment such as electrocardiographs and consumables used to take blood pressure readings – saw sales grow 2% organically as management was able to increase production capacity and factory output, thereby In turn address the department’s backlog. Efficiency improvements improved the segment’s EBIT margin by 10 basis points. “Driven by lean principles, the team reduced past due backlog throughout the year to increase capacity. These actions will provide greater fulfillment flexibility in the coming quarters,” Saccaro said on the call. Drug Diagnostics (PDx) ) segment (for radiology and nuclear medicine to provide more precise diagnostics) was particularly strong, with revenue growing 7% organically. PDx’s EBIT margin improved 270 basis points due to higher procedure volumes, higher prices and new product launches. This is Flyrcado’s unit. GEHC is guided to expect that the full-year organic revenue growth trend will tend to the lower end of the previously provided range of 1% to 2%. Management believes that “the continued weakness of the Chinese market” is the main reason. Wall Street expected a gain of 1.5% from the previous year. On the other hand, the team raised the lower end of the full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) target range, now targeting 15.8% to 16%, compared with the previous range of 15.7% to 16% and 15.8%. compared to consensus estimates. Adjusted full-year earnings per share are now expected to be in the range of $4.25 to $4.35, an increase from the low end of the previous range of $4.20 to $4.35 per share. This compares to the consensus estimate of $4.25. Free cash flow was reiterated at approximately $1.8 billion. (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. The investment club information above is subject to our Terms and Conditions and Privacy Policy and our Disclaimer. No fiduciary duty or obligation shall exist or arise upon your receipt of any information relating to the Investment Club. 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The emergency room at the University Hospital Jena (UKJ) in Germany is preparing for a CT scanner examination. The GE Healthcare scanner is called the Revolution CT.
Martin Schutte | Image Alliance | Getty Images
GE Healthcare Quarterly results released before the market opened Wednesday were mixed. Despite a slight revenue decline, improving earnings and a number of other positive factors drove the stock higher.
