GEHC reported 24Q3 revenues of $4.86 billion, up 0.9% YOY and matching my estimate of $4.90 billion. Revenues were flat, except Life Support Solutions (within the PCS segment), where sales rose 16.8%, and the PDx segment, up 12.5%. Sales in China fell 22%. Excluding China, sales grew 4.8%, led by gains of 8% in the U.S. and 5% in the rest of the world (excluding EMEA). Orders increased 1%, but were up mid-single digits excluding China.
Despite the China headwinds, 24Q3 operating income rose 9.6% to $677 million, with operating margin up 110 bp to 13.9%. A 160 bp rise in gross margin and 20 bp drop in the R&D expense ratio were partially offset by a 60 bp increase in the SG&A expense ratio. Interest expense eased due to lower debt levels. The provision for taxes fell by 32.8%, as the effective tax rate declined 13.8 percentage points to 25.5%. Thus, GAAP net income available to shareholders jumped 25.6% to $472 million and GAAP diluted EPS advanced 24.3% to $1.03. Non-GAAP EPS rose 16.2% to $1.14, better than my estimate of $1.11.
GEHC’s orders and sales growth has been hurt by the delays associated with China’s stimulus funding, which the company now expects will continue into 2025. This is a key factor in GEHC’s 2024 organic sales growth guidance of only 1%-2%. Based upon the 24Q3 improvement in operating margin, though, GEHC has raised the low end of its adjusted EBIT margin guidance by 10 bp to 15.8%-16.7% and the low end of its adjusted (non-GAAP) EPS guidance range by a nickel to $4.25-$4.35. It also reaffirmed its 2024 free cash flow guidance of about $1.8 billion.
Based upon the gives and takes of the quarter, I have lowered my 2024 GAAP EPS estimate from $4.06 to $4.00. My 2024 non-GAAP EPS estimate is now $4.35, up from $4.34 in my previous report. Projected 2025 GAAP EPS is $4.65, up from $4.60, and non-GAAP EPS is projected to be $4.60, up from $4.55. My 2025 projections, which anticipate sales growth of 2.8%, assume a recovery of China sales and some benefit from new products, including the rollout of Flyrcado, GEHC’s F-18 PET myocardial perfusion imaging tracer for patients with coronary artery disease.
Since my last report (8/15), GEHC’s stock has risen 1.9%, below the S&P 500’s 3.4% increase and even with the peer group’s average gain of 1.9%. The stock has fallen back from its Sept. 27 intraday high of $94.55 to $86.95. With that decline, it has broken below its 50-day moving average, putting its uptrend under pressure.
Based upon the modest lift to 2025 EPS projections, I am raising my price target for GEHC to $94 (from $91). The new target equates to slightly more than 20 times projected 2025 GAAP and non-GAAP EPS, which is in line with the stock’s current forward valuation and GEHC’s peer group. With its recent advance, the stock’s potential return is now 9.4%, including its 0.1% dividend yield. Accordingly, I am maintaining my performance rating of “3” (Neutral).
This is a summary of my recent update report on GE Healthcare Technologies, Inc. (GEHC). To obtain a copy of the report, please reach out to me using the contact information provided below.
November 18, 2024 (Report published on November 2, 2024.)
Stephen P. Percoco
Lark Research
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© 2015-2024 by Stephen P. Percoco, Lark Research. All rights reserved.
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