Business at GE Healthcare Technologies closed 2023 on a strong note despite continued concerns about China. That, along with management's optimistic view of this year, propelled shares up more than 13% to over $83 apiece at session highs. That was its highest level since July 2023. Club shares closed just under $82. Total revenue rose more than 5% year over year to $5.21 billion, beating analyst expectations of $5.1 billion, according to LSEG. Adjusted earnings per share (EPS) of $1.18 beat LSEG's estimate of $1.07. Bottom Line We always say that expectations matter when it comes to earnings season. Sometimes a company can do everything right and have a good quarter, but see its stock fall because expectations were a little ahead of schedule. It was Eli Lilly, which also reported its results on Tuesday. In other examples, the stock has dropped so much that you already anticipate failure. When the company fails but the results are not as bad as feared, the quarter becomes a compensating event and the bad quarter becomes the starting point of a new rebound. Starbucks' results last week were a great example of this. GE Healthcare's quarterly earnings result on Tuesday is the best of both worlds. Expectations were so low in part because of fears about China (and we shared some of those earnings concerns) and uncertainty about its ability to meet its post-turnaround financial goals. But here's the thing: despite an analyst community that doesn't care about GEHC, it was never bad. It was spun off last year from General Electric and then began to decline for reasons that had nothing to do with the company's performance or prospects. GEHC manufactures all types of medical equipment, from ultrasounds to MRIs and CT scanners, and also manufactures pharmaceutical diagnostic agents and offers patient care services. But there was never anything wrong with it. We were confused about how the stock of a quality company could have fallen the way it did. It's also why we gobbled it up below $70 a share several times last year. When expectations are low, the stock is cheaply priced relative to its peers, and management continues to beat expectations while reiterating its path of continued margin improvement, you get a reaction in a stock like the one we're seeing today. with GE Healthcare. Jim Cramer was less diplomatic in a post on X, formerly known as Twitter. We will maintain our 2 rating on the stock, but increase our price target by one dollar to $92 per share. The stock should be able to rise further if management can outperform and rally throughout the year. Quarterly Commentary In addition to mid-single-digit organic revenue growth, the company's total orders increased 3%. Investors tend to focus on orders because they are indicative of customer demand. This result should be welcomed for two reasons. First, the 3% growth rate was an improvement over the 1% increase in the third quarter and much better than feared in light of concerns about China's anti-corruption campaign against its manufacturing industry. health. Second, GE Healthcare continues to outperform its peers. Last week, Philips said its orders fell 3% in the fourth quarter, marking its sixth consecutive quarter of declines. The continued divergence in orders between the two companies suggests that GE HealthCare is gaining market share in the industry. The total value of the company's order book closed the year at a record $19.1 billion, up $700 million from the third quarter. The company believes this gives them visibility into 2025. The company's book-to-bill ratio, which is a measure of orders received relative to sales, was 1.05 times, an improvement from 1.05 times. 03 times in the third quarter. Any value above 1 generally bodes well for the future, as it means that more orders are coming in than recorded revenue. Fourth-quarter earnings before interest and taxes (EBIT) were flat year-over-year at 16.1%, but improved 70 basis points from the third quarter. The company still believes it can achieve margins between 10 and 20% in the medium term through price execution, volume improvement, introduction of new higher margin products and further business optimization. GE Healthcare was hit by an analyst downgrade to sell last November over concerns that its pricing tailwinds had ended, limiting its ability to meet its margin target. We continue to struggle with this bearish view. Management hopes to take 1% to 2% of the price in 2024 and continue with that plan going forward. But what makes us even more optimistic about margins going forward is the integration of artificial intelligence and software into its products. We talked about this after the company presented at the JPMorgan Healthcare conference in January. In the long term, we are encouraged by GEHC's role in screening and treating patients for a new class of Alzheimer's drugs and treatments in development for other conditions. On the post-earnings call, management said, “New therapies are going to come out. And as they grow, they'll need our team to do imaging and manage safety.” Guidance Regarding guidance, we believe management has set reasonable, but beatable, expectations for all of 2024. The company expects organic revenue growth of approximately 4%, putting sales roughly in line with estimates of 20,300 millions of dollars. Adjusted EBIT margins are expected to improve by 50 to 80 basis points to the range of 15.6% to 15.9%, which at a midpoint of 15.75% is slightly above estimates of 15.72 %. We expect management to review this guidance further throughout the year. Adjusted EPS is expected to be in the range of $4.20 to $4.35, representing growth of 7% to 11% compared to 2023. We are pleased to see this midpoint of $4.28 beat the estimate. $4.24 consensus. It is worth noting that this scenario envisages a soft China. Management expects growth in China to be negative in the first half of the year, surpassing the strong growth rate of 20% from 2023 and returning to growth in the second half. Finally, GE Healthcare continues to take a more optimistic view of the capital expenditure environment compared to last year, based on increased purchasing and ordering patterns, positive internal customer survey work, and improved hospital profitability. . We believe interest rate cuts coming from the Federal Reserve later this year (the number of which is up for debate) could further improve the purchasing environment. (Jim Cramer's Charitable Trust is long GEHC. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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A GE Healthcare Ltd. BioProcess machine is on display during the International Pharmaceutical Exposition (Interphex) in New York.
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Business in GE Healthcare Technologies ended 2023 on a strong note despite continued concerns about China. That, along with management's optimistic view of this year, propelled shares up more than 13% to over $83 apiece at session highs. That was its highest level since July 2023. Club shares closed just under $82.
