What happened
General Electric spinoff GE HealthCare Technologies (GEHC -0.89%) Shares were up 8.6% by 11:30 a.m. today. The move comes after the market digests its preannounced preliminary fourth-quarter and full-year earnings, as well as its initial outlook for 2023.
According to the release, organic fourth-quarter revenue growth will be a whopping 12%. Meanwhile, adjusted earnings before interest and taxation (EBIT) will come in above the $2.6 billion forecast on the investor day in December. Free cash flow (FCF) is expected to come in "toward the low end" of the $2.1 billion to $2.3 billion range given in December. For reference, these figures exclude carve-out adjustments coming from the spinoff from GE.
The results are good, and the guidance for 2023 is also positive. Management expects 5% to 7% organic revenue growth with margin expansion and FCF conversion from adjusted net income of 85%.
So what
The release highlights the value proposition of the stock. Assuming GE HealthCare starts life as a company generating $2.1 billion in FCF, the stock trades on just 13.6 times its FCF. That's attractive for a world-class imaging and ultrasound company. In addition, its high-margin pharmaceutical diagnostics (agents and tracers that help scans and diagnoses) work well alongside the imaging businesses.
Moreover, management has a margin expansion opportunity in its largest business, imaging, as it seeks to close the gap between its historical 10% to 13% margins versus Siemens Healthineers' imaging segment adjusted EBIT margin of 20.5% in 2022.
Now what
GE HealthCare will report results on Jan.30. If the details align with the headline guidance given in the preliminary figures, investors can expect them to be received positively. As a result, the healthcare stock looks like a good value.
