GEHC reported 25Q2 revenues of $5.00 billion, up 3.5% YOY and in line with my estimate. Revenues rose 14.1% in Pharmaceutical Diagnostics (PDx), 3.2% in Advanced Visual Solutions, 1.5% in Imaging and 0.8% in Patient Care Solutions (PCS). Sales rose 4.3% in the U.S., 5.1% in Europe and 3.6% in the rest of the world, more than offsetting a 3.4% decline in China. Organic orders increased 3%, with a book-to-bill of 1.07 times.
25Q2 gross profit slipped 0.9%, as gross margin fell 180 bp to 39.6%. The decline was due in part to a shift of expenses from R&D to cost of sales. GEHC’s SG&A expense ratio fell 140 bp to 20.6% and its R&D expense ratio declined 80 bp to 6.0%. Thus, operating income rose 7.2% to $653 million with operating margin up 40 bp to 13.0%, Other items were slightly more negative, but the company’s effective tax rate dropped from 24.7% to $18.5%. As a result, net income rose 14.2% to $499.0 million. 25Q1 GAAP diluted EPS increased from $0.93 in 24Q2 to $1.06 and non-GAAP adjusted EPS rose from $1.00 to $1.06. Both were above my estimates of $0.87 for GAAP EPS and $0.92 for non-GAAP EPS. 25Q2 free cash flow was $8 million, better than last year’s FCF drain of $182 million.
Management says that health care capital spending remains healthy. With that and improvements in operational execution and a smaller than previously anticipated negative impact from tariffs, GEHC raised its 2025 non-GAAP adjusted EPS guidance from a range of $3.90-$4.10 to $4.43-$4.63. That includes a benefit $0.40 per from lower expected tariff costs and $0.13 from better execution and lower interest and tax. I have adjusted my 2025 estimates accordingly and now expected 2025 GAAP EPS $4.62 (up from $4.15) and non-GAAP EPS of $4.45 (up from $4.00). For 2026, I now project GAAP EPS of $4.18 (down from $4.44), non-GAAP EPS of $4.65, (up from $4.50).
After releasing earnings earlier today, the stock closed down 7.8% to $71.64. The drop in difficult to explain because the quarterly results were generally good and management was upbeat in its outlook. Since my last report (5/20), GEHC’s stock is down 0.3%, worse than S&P 500’s 7.3% gain and the peer group’s average gain of 2.4%. All of the under-performance is explained by today’s decline. Except for it, GEHC’s stock performance was slightly ahead of the S&P.
I am maintaining my price target of $83, which equates to a forward valuation multiple of about 19.9 times projected 2026 GAAP EPS of $4.18 and 17.9 times non-GAAP EPS of $4.65. That is above the stock’s current one-year forward multiples of 15.5 times 2025 GAAP EPS and 16.1 times non-GAAP EPS, but still below the peer group average of 19.5 times non-GAAP earnings. The price target represents a potential 12-month total return of 16%. Consequently, I am maintaining my performance rating of “1” (Buy). Of course, there is still considerable uncertainty about the final outcome of the tariff negotiations, but GEHC has and will continue to take actions to mitigate them as much as possible.
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.
July 30, 2025 (Report published on July 30, 2025.)
Stephen P. Percoco
Lark Research
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© 2015-2026 by Stephen P. Percoco, Lark Research. All rights reserved.
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