What happened
Shares in GE HealthCare Technologies (GEHC -0.56%) rose 19.1% in January, according to data provided by S&P Global Market Intelligence. The move marked an excellent start for the newly listed company, a spin-off from General Electric that began trading on the Nasdaq on Jan. 4.
It also marked the first and last time the company's earnings will be released in what can only be described as a mini-series. Management gave its preliminary earnings (basic indicatory details) at the JPMorgan HealthCare conference on Jan. 10. Then, GE reported its earnings on Jan. 24, including GE HealthCare's full-year headline earnings and other data, and finally, GE HealthCare reported its earnings on Jan. 30.
The market seemed to like what it heard at each step because the stock ascended throughout the month.
So what
It's always challenging to get a straightforward fix on a new issue. Still, though the dust has settled, it's apparent that GE HealthCare is an attractive, reasonably valued company comprised of complementary imaging, ultrasound, pharmaceutical diagnostics (e.g., tracers and markers used in imaging diagnosis), and patient care solutions segments (e.g., monitoring solutions, maternal infant care, respiratory care).
In the near to medium term, the company has a margin expansion opportunity coming from the potential to overcome the supply chain issues that impacted revenue volume and margin growth in 2022. Meanwhile, new product introductions (NPI) and investment in expanding production capacity (notably an $80 million investment in the pharmaceutical diagnostics business), as well as management hitting the acquisition trail now that it's a standalone company, offer longer-term growth prospects.
In addition, GE HealthCare is the only imaging company with its own pharmaceutical diagnostics business, so it stands well placed to drive growth in theranostics. This emerging technology uses imaging technology to diagnose and precisely target an area for treatment.
Now what
The combination of mid-single-digit revenue growth potential and margin recovery potential is compelling. Moreover, the guidance for adjusted earnings per share in 2023 of $3.60 to $3.75 puts GE HealthCare on a forward price-to-earnings ratio of around 19 times estimated earnings. That's a reasonable valuation for a leading healthcare company with growth potential.
The stock has received support as the investment case has become clearer to investors. Now it's time for management to deliver on the company's potential over the near and long term.
