GEHC reported 24Q1 revenues of $4.65 billion, down 1.2% YOY and 4.1% below my estimate. Excluding currency, revenue was flat. Revenues declined in Imaging, Ultrasound and PCS, but PDx revenue increased 7.3%. Sales in China fell 11%. The company faced a tough prior year comparison, as 23Q1 revenues had gained from improved supply chain fulfillment and China’s regional stimulus program.
24Q1 operating income declined 3.6% to $540 million. With lower interest expense (due to debt retirement) and lower taxes, GAAP net income increased 1.0% to $388 million. The non-repeat of 23Q1’s deemed preferred stock dividend of redeemable noncontrolling interest also helped 24Q1 GAAP EPS attributable to GEHC shareholders to rise from $0.41 to $0.81, but that was still below my estimate of $0.83. Non-GAAP EPS increased from $0.85 to $0.90, below my estimate of $0.96.
Despite the shortfall in revenues and earnings against my estimates (and consensus), management reaffirmed its full year 2024 guidance. Several factors – including a strong backlog and orders funnel in Imaging, planned new product introductions (which are priced at higher gross margins), the expected resolution of fulfillment challenges in PCS and the potential for a new stimulus program in China – drive the company’s expectation of steady sequential improvement in revenues and earnings throughout the year, with accelerated growth in 24H2.
As a result, I now anticipate 2024 GAAP EPS of $4.22 and non-GAAP EPS of $4.32, within management’s non-GAAP guidance of $4.20-$4.35. For 2025, I project GAAP EPS of $4.56 and non-GAAP EPS of $4.55. My 2024 EPS estimate is above the current average analyst estimate of $4.27 (with a range of $4.21-$4.33), but my 2025 EPS estimate is below the mean analysts’ estimate of $4.76 ($4.60-$4.90).
On April 30, the day of GEHC’s earnings release, its stock fell 14.3% to $78.57. It recovered about half of that loss in the ensuing nine trading sessions, but has since drifted lower, mostly in line with the broader market, to close yesterday at $78.65.
At the current price, the GEHC’s stock trades at 18.2 times my 2024 non-GAAP EPS estimate of $4.32 and 17.3 times my projected 2025 non-GAAP EPS of $4.55. Both forward multiples are below the peer group averages of 23.6 for 2024 and 21.4 for 2024. (A list of stocks included in the peer group is on page 6.)
If GEHC is able to deliver on its guidance, I believe that its valuation discount vs. peers will narrow. Accordingly, I am raising my price target on GEHC to $91 (from $85 previously). The new target is based upon an assumed one-year forward multiple of 20 multiplied by projected 2025 GAAP EPS of $4.56 (and the same multiple for projected 2025 non-GAAP EPS of $4.55). The assumed forward multiple of 20 is above GEHC’s current forward multiple of 18.7, but below the peer group average of 23.6. The new price target represents a potential 12-month total return of about 16%. As a result, I am raising my performance rating on GEHC’s stock from “2” (Outperform) to “1” (Buy).
This is a summary of my recent update report on GE Healthcare Technologies (GEHC). To obtain a copy of the full report, please reach out to me using the contact information provided below.
May 31, 2024 (Report published on the same date.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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