GE Healthcare Technologies (GEHC -0.89%) is the new kid on the block in the healthcare industry. It spun off from General Electric in January, and it has started to pop up on investors' radars. The company has a diverse business, and its imaging and ultrasound machines are well-known in the industry.
There are many positives about the business. Here are three of the biggest, as well as one reason why you may be inclined to think twice about investing in the stock.
1. GE Healthcare's profit margin is around 11%
In 2022, GE Healthcare reported net income of just under $2 billion. On revenue of $18.3 billion, that comes out to an impressive profit margin of around 11%. That's a solid result that could make it easy for GE Healthcare to reinvest in its business as it grows, and it also gives it a buffer in case costs rise, as it can still turn a profit amid headwinds.
What I find surprising is that GE Healthcare is achieving these types of profits even though its gross margins are relatively modest at less than 40%. But with modest overhead and research and development expenses, the healthcare company is still able to report a strong bottom line. That's a good sign that the business' products can sell themselves.
2. It generated double-digit organic growth last quarter
Another thing that stands out from the company's recent earnings report is that for the quarter ended Dec. 31, 2022, GE Healthcare reported revenue of $4.9 billion, which was up 8% year over year and 13% on an organic basis. Organic revenue growth doesn't factor in the impact of foreign exchange, which GE Healthcare says had a negative 6% impact on its top line during the quarter (which was partly offset by a 1% favorable impact from acquisitions).
Generating double-digit organic growth at a time when businesses are scaling back on spending or delaying purchases is an excellent sign for the business and shows how necessary its products are for hospitals. This suggests that GE Healthcare may be resilient and potentially a good buy this year even if you're worried about a possible recession.
3. Its free cash flow nearly topped $1 billion in Q4
One thing investors also shouldn't overlook when considering a business to invest in is its free cash flow, the operating cash flow it has available after paying for capital expenditures. Last quarter the company reported $987 million in free cash flow, or $436 million higher than a year ago, which the company credits to "improvement in supply chain and collections."
Free cash flow can help a business grow its cash balance and pursue acquisitions, something that GE Healthcare has already done with multiple acquisitions announced this year. In January, the company said it would be acquiring Imactis, a France-based business that makes a navigational system for computed tomography (CT). And just last week it announced another deal to buy Caption Health, which uses artificial intelligence to help with early disease detection and making ultrasounds more efficient.
The downside: There's no dividend
One thing many investors have come to expect from established healthcare companies is a dividend. But GE Healthcare doesn't offer one today, and given its aggressive pursuit of acquisitions out of the gate, it looks like that's where the company is going to focus on spending its free cash flow rather than dividends. That could change, but for the time being investors shouldn't count on a dividend.
Should you buy shares of GE Healthcare?
There are a lot of positives around GE Healthcare's business. However, I'd be inclined to look at healthcare stocks with more growth potential. GE Healthcare could make for a good and stable investment to hold, but without a dividend to compensate investors, there may not be enough of a reason to buy the stock just yet.
Investors may be better off waiting to see how the business performs in its first year, because it looks like there could be a lot of wheeling and dealing that may be on the horizon if GE Healthcare continues on with its current pace. And after the dust clears, there will be more clarity as to the business' future.
