SMMNY - GE HealthCare: Near-Term Risks But Some Interesting Longer-Term Opportunities

2024-07-06 23:26:29 ET

Summary

• GE HealthCare's near-term outlook creates near-term execution risk given the need for a strong 2H'24 ramp, but the longer-term potential may be underrated by the Street.
• GE HealthCare is a strong #2 in imaging behind Siemens Healthineers; while the company lags in photon-counting CT, its silicon-based approach could be the better one long term.
• I believe the Street is underestimating the potential of new markets in ultrasound (PoC, surgery, and peripheral), as well as high-margin growth in PDx tied to Alzheimer's, cardiology, and oncology.
• Despite near-term challenges, GE HealthCare's margins are expected to improve, with potential for high-single digit FCF growth and M&A opportunities.
• Long-term revenue growth of around 5% and FCF growth of 8% can support a fair value above $90.

As much as investors may want to consider themselves as long-term owners, the reality is that short-term company performance still matters, and nobody likes to see their portfolio holdings decline. I mention this at the open of this discussion of GE HealthCare Technologies ( GEHC ) because I do see a split between a riskier near-term outlook that is dependent upon a strong second-half performance and a longer-term outlook that may undervalue some significant growth drivers within the business....

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