GE Healthcare Technologies (GEHC) 23Q3 Update Report

GEHC reported 23Q3 revenues of $4.82 billion, up 5.4% YOY.  Revenues increased 6% organically.  Organic orders increased 1%.  Product sales grew 5.8%; while services sales rose 4.6%.  All segments posted revenue gains, except for Ultrasound, which was up against a tough prior year comparison.

GAAP diluted EPS was $0.82 vs. $1.07 last year and my estimate of $0.89.  Operating income of $617 million was 3.2% above my projections, due to lower-than-expected SG&A expense.  Pretax income of $636 million exceeded projections by 12.3% due to $69 million of other income (not included in my estimates).  Net income of $386 million was 7.9% below my projection, as income tax expense exceeded my estimate, due to higher international tax rates and a $105 million increase in the deferred tax provision related to the GE Tax Matters Agreement.  Non-GAAP diluted EPS of $0.99 exceeded 22Q3’s pro forma standalone EPS of $0.87 and my estimate of $0.96.  Free cash flow of $570 million exceeded my estimate of $490 million, as capital expenditures of $70 million were below my projection of $150 million.

Based upon 23Q3 results, GEHC raised its 2023 the midpoint of its adjusted (non-GAAP) EPS guidance from $3.775 ($3.70-$3.85) to $3.80 ($3.75-$3.85).  The rest of its guidance is unchanged.  Accordingly, I have lowered my 2023 GAAP EPS estimate from $3.27 to $3.23 and my non-GAAP estimate from $3.86 to $3.84.  For 2024, I have lowered my revenue growth assumption from 4.5% to 3.5%, given the trend in orders and its 1.03 book-to-bill ratio.  I have also lowered my GAAP EPS estimate from $3.67 to $3.64 and my non-GAAP estimate from $4.19 to $4.16.

Since my last report, GEHC stock has lost 1.6% compared with the S&P 500’s +2.3% total return.  Excluding yesterday’s 3.5% decline, however, its performance had essentially matched the S&P.  YTD, the stock has earned a total return of 22.0%, slightly above the S&P 500’s 20.3% total return.

With the revised estimates, I am reducing GEHC’s price target from $85 to $81.  The new target equates to 22.2 times projected 2024 GAAP earnings of $3.64 and 19.5 times projected non-GAAP earnings of $4.16.  (The non-GAAP multiple is roughly in line with the peer group average of 19.)  The PT equates to a potential total return of 14%.  Accordingly, I am maintaining my performance rating of “2” outperform.

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.

December 7, 2023 (Report originally published on November 28, 2023.)

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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