GE Healthcare Technologies (GEHC) will be spun-off from General Electric Company (GE) on January 4, 2023. Under the terms of the spin-off, GE shareholders will receive one share of GEHC for every three shares of GE that they own. In total, GE shareholders will receive an 80.1% equity stake in GEHC. GE will retain the remaining 19.9% interest, which it plans to divest over time.
GEHC is a global medical equipment and services company with leading market positions in imaging, ultrasound, patient care systems and pharmaceutical diagnostics. With its focus on precision health, which utilizes the patient’s unique healthcare data to deliver targeted therapies, GEHC aims to deliver better outcomes for patients and improved productivity and efficiency for healthcare providers. It also generates $1 billion annually across all business units from digital solutions, including artificial intelligence.
At its recent Investor Day, the company established targets of mid-single digit revenue growth and an increase in segment adjusted EBIT margins from the mid-teens to 20% by 2025. It did not outline the trajectory of the profit improvement, however. 2023 may be a reset year, as GEHC gets its bearings as an independent company, probably with a step up in its restructuring program, and as it copes with the lingering headwinds of supply chain issues, inflation and currency. Its healthcare provider customers are likewise coping with labor shortages, inflation and patient volumes that remain below pre-pandemic levels.
My projections anticipate 2023 GAAP earnings of $3.09 per share and non-GAAP EPS of $3.57. For 2024, I forecast GAAP EPS of $3.47 and non-GAAP EPS of 3.95.
At today’s (12/23) when-issued price of $57.50, GEHC has an equity market cap of $26.2 billion and its stock is valued at 18.6 times projected 2023 non-GAAP EPS, below the peer group average of nearly 22 times. With only modest growth projected for 2024, I am establishing a price target of $67, which equates to 17 times projected 2024 non-GAAP EPS of $3.95, still well below peers. The PT represents a total potential return of 16.5%, excluding the possibility that GEHC will initiate a dividend. If GEHC succeeds in improving its EBIT margins, the potential upside is far greater (from higher earnings and an expansion in its valuation multiple).
This is a summary of my report on GE Healthcare Technologies, Inc. (GEHC). To obtain a copy of the full report, please reach out to me using the contact information provided below.
December 29, 2022
Stephen P. Percoco
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