2023-09-13 16:02:03 ET
Summary
- On July 25, 2023, GE HealthCare Technologies, one of the leading companies in developing and commercializing medical devices and pharmaceutical diagnostics, published financial results for the second quarter of 2023.
- GE HealthCare's revenue amounted to $4.82 billion for the quarter, 2.3% more than the previous quarter and 7.6% more than the second quarter of 2022.
- As a result, GE HealthCare management raised its full-year 2023 guidance for adjusted EPS from $3.60-$3.75 to $3.70-$3.85.
- We initiate our coverage of GE HealthCare with an "outperform" rating for the next 12 months.
GE HealthCare Technologies (GEHC) has been one of the leading companies in developing and commercializing medical devices and pharmaceutical diagnostics for many decades. The company has an extensive portfolio of scanning devices, such as X-ray systems, computed tomography scanners, and ultrasound scanners, which play a key role in detecting tumors, cardiovascular diseases, skeletal injuries, and more.
The FDA's approval of two medicines aimed at treating Alzheimer's disease has spurred increased demand for the services and products of GE HealthCare's PDx division, a leading diagnostics provider for this deadly brain disorder. Magnetic resonance imaging, SPECT machines, radiopharmaceuticals, and contrast agents of the company make it possible to accurately detect the presence of such widespread diseases as breast cancer, Parkinson's disease, and coronary heart disease in patients.
GE HealthCare
GE HealthCare isn't resting on its progress, and at the end of August, it announced that it had launched the Vscan Air SL . This portable, wireless ultrasound imaging system reduces the time it takes to evaluate the heart and blood vessels compared to bulky traditional machines, ultimately allowing physicians to create treatment plans much more quickly.
On July 25, 2023 , GE HealthCare announced financial results for the second quarter of 2023 that exceeded analysts' expectations despite increased competition in the Chinese point-of-care diagnostics market. As a result, the company's share price has risen more than 18% since the beginning of 2023, outperforming major competitors such as Medtronic ( MDT ), Abbott Laboratories ( ABT ), and Danaher ( DHR ).
Author's elaboration, based on Seeking Alpha
We initiate our coverage of GE HealthCare with an "outperform" rating for the next 12 months.
The financial position of GE HealthCare and its prospects
GE HealthCare's revenue amounted to $4.82 billion for the second quarter of 2023, 2.3% more than the previous quarter and 7.6% more than the second quarter of 2022. Since the company's spin-off from General Electric ( GE ) was completed in January of this year, its actual revenue has beaten analysts' consensus estimates in every recent quarter. As a result, this indicates Wall Street's conservative assessment of the growth potential and pace of development of GE HealthCare's four business segments.
Author's elaboration, based on Seeking Alpha
The key segment that contributed to the company's revenue growth year-on-year and quarter-on-quarter was the Imaging segment. Cumulative sales of this segment were $2.62 billion for the three months ending June 30, 2023, up 5% quarter-over-quarter due to solid growth in demand for PET/CT scanners in the United States and Europe. The ultrasound diagnostics segment revenue was $839 million, showing a more modest increase relative to the company's three other segments, despite increasing prices for its equipment and the launch of new products aimed at diagnosing cardiovascular diseases.
Author's elaboration, based on quarterly securities reports
Following the end of the emergency phase of the COVID-19 outbreak, which between 2021 and 2022 resulted in a sharp decline in diagnostic imaging procedure volumes, logistical challenges in delivering company equipment to end customers, and its subsequent servicing, the remaining performance obligations continue to increase. We believe this is a positive indicator that more healthcare and academic institutions are becoming GE HealthCare's clients.
Author's elaboration, based on quarterly securities reports
According to Seeking Alpha , GE HealthCare's revenue for the third quarter of 2023 is expected to be $4.75-$4.86 billion, which is slightly higher than analysts' expectations for the three months ended June 30, 2023. At the same time, under our model, GE HealthCare's total revenue will be closer to the upper limit of this range and will be $4.86 billion. When forecasting this value, we considered the impact of the military conflict between Ukraine and Russia, which almost wholly suspended the company's diagnostic equipment supply to these two countries.
On the other hand, GE Healthcare remains a leader in pharmaceutical diagnostics, whose portfolio consists of numerous products widely used to diagnose various diseases.
Author's elaboration, based on Molecular Imaging Diagnostic Portfolio - GE Healthcare
With the FDA's approval of Aduhelm (aducanumab-avwa) and Leqembi (lecanemab-irmb) for the treatment of Alzheimer's disease, we believe sales growth for Vizamyl (flutemetamol F 18), a radiopharmaceutical used to measure the amount of beta-amyloid plaques in a patient's brain, will only accelerate. Moreover, dozens of pharmaceutical companies continue searching for new treatments for this deadly disease, affecting approximately 6.7 million Americans in 2023 . Thus, on July 17, 2023 , Eli Lilly announced that the submission to the FDA for traditional approval of donanemab was completed at the end of the second quarter of 2023, and a decision on it is expected at the end of this year.
Created by author
GE HealthCare's operating income margin in Q2 2023 was 13.91%, slightly recovering from the previous quarter. We forecast that this financial indicator will reach 14.2% in 2023. By 2024, it will grow to 15.1% due to decreased inflation and increased demand for the company's medical devices used in medical-surgical, labor and delivery units and operating rooms.
GE HealthCare's EPS for the three months ended June 30, 2023, was $0.92, up 8.2% from the previous quarter. According to Seeking Alpha , GE HealthCare's EPS in the third quarter of 2023 is expected to be $0.87-$0.92, 2.3% more than the consensus estimate for the second quarter of 2023. While we believe these are conservative expectations, our model projects the company's EPS to be $0.94.
Author's elaboration, based on Seeking Alpha
At the same time, GE HealthCare's Non-GAAP P/E [FWD] is 17.24x, 11.20% less than the average for the healthcare sector. This is one of the factors indicating a slight undervaluation of the company by Mr. Market during the current period of growth in COVID-19 hospitalizations , which will also provoke an increase in the use of its devices in intensive care units.
Centers for Disease Control and Prevention
Conclusion
On July 25, 2023, GE HealthCare Technologies, one of the leading companies in developing and commercializing medical devices and pharmaceutical diagnostics, published financial results for the second quarter of 2023.
GE HealthCare continues to delight investors with year-on-year growth in demand for the company's medical devices and services. In particular, this is due to the launch of new products and the approval of medicines to treat Alzheimer's, which will lead to an increase in the diagnosis of this brain disorder. As a result, GE HealthCare management raised its full-year 2023 guidance for adjusted EPS from $3.60-$3.75 to $3.70-$3.85.
However, given technical analysis and growing concerns among financial market participants regarding the Fed's ability to control US inflation following the release of the above-expected CPI , we believe that the price range at which the risk/reward profile would be attractive is from $61 to $62 per share.
We initiate our coverage of GE HealthCare with an "outperform" rating for the next 12 months.
For further details see:
Why Did GE HealthCare Excel Beyond The COVID-19 Crisis?