GEHC reported 25Q1 revenues of $4.78 billion, up 2.7% YOY and in line with my estimate. Revenues rose 5.5% in Pharmaceutical Diagnostics (PDx), 3.8% in Imaging, 1.0% in Advanced Visual Solutions and 0.8% in Patient Care Solutions (PCS). U.S. sales rose 6.9%, partially offset by declines of 0.7% in China and 1.5% in the rest of the world. Organic orders jumped 10% YOY, resulting in a book-to-bill of 1.09 times.
25Q1 gross profit rose 5.8% with gross margin rising 120 bp to 42.1%. GEHC’s SG&A expense ratio fell 150 bp, which resulted in a 16.5% jump in operating income and 160 bp expansion in operating margin to 13.2%. A positive swing in other income, due to a revaluation of its investment in Nihon Medi-Physics (after GEHC completed the acquisition of the 50% share held by Sumitomo Chemical), and a lower tax rate drove a 50.9% increase in net income. 25Q1 GAAP diluted EPS increased from $0.81 in 24Q1 to $1.23 and non-GAAP adjusted EPS rose from $0.90 to $1.00. Both beat my estimates of $0.90 for GAAP EPS and $0.96 for non-GAAP EPS. 25Q1 free cash flow was only $98 million, well below last year’s $274 million and my estimate.
As a result of the looming tariff wars, management revised its 2025 non-GAAP adjusted EPS guidance from a range of $4.61-$4.75 to $3.90-$4.10. That includes a reduction of $0.80 per share due to tariffs. The net reduction in guidance is $0.65-$0.71, so the difference of $0.09-$0.15 represents an increase presumably based upon management’s expectations of stronger performance for the company for the balance of the year. I have adjusted my 2025 estimates accordingly and I have also brought down my 2026 projections on the assumption that it will take time to offset most or all of the remaining tariff impact. For 2026, I now project GAAP EPS of $4.44 (vs. $5.04 previously), non-GAAP EPS of $4.50 (vs. $5.10) and free cash flow of $1.34 billion.
Since my last report (11/2), GEHC’s stock has fallen 12.8%, worse than S&P 500’s 3.0% gain and the peer group’s 2.4% average decline. The stock has risen 24% from its April 4 intraday low of$59.01, but it has been fading from its May 12 intraday high of $77.75. The market looks overbought near-term after its sharp recovery off of its April 8 lows; so it may be a while before GEHC’s stock fully recovers to its all-time intraday high of $94.75 set on Feb. 13.
Accordingly, I am lowering my price target from $94 to $83. The price target equates to a forward valuation multiple of about 18.5 times projected 2026 GAAP EPS of $4.44 and non-GAAP EPS of $4.50. That is above the stock’s current one-year forward multiples of 17.6 times 2025 GAAP EPS and 18.1 times non-GAAP EPS, but still well below the peer group average of 19.6. The price target represents a potential 12-month total return of 15.7%. Consequently, I am raising my performance rating from “2” (Outperform) to “1” (Buy). Obviously, the final outcome of the tariff negotiations will affect the timing and potentially the magnitude of the stock’s recovery from here.
This is a summary of Lark Research’s recent report on GE Healthcare Technologies, Inc. (GEHC). To obtain a copy of the report, please reach out to Steve Percoco using the contact information provided below.
June 20, 2025 (Report published on May 20, 2025.)
Stephen P. Percoco
Lark Research
839 Dewitt Street
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(908) 975-0250
admin@larkresearch.com
© 2015-2025 by Stephen P. Percoco, Lark Research. All rights reserved.
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