GE HealthCare Technologies (GEHC 0.56%), the new medical device spinoff from General Electric, appears to be a darling of the market both before and after reporting revenues of $18.3 billion in 2022, up 4% year over year, and $4.9 billion in the fourth quarter, an 8% increase over the year-ago period.
Investors may be loving GE HealthCare's push into artificial intelligence, exemplified by its Feb. 9 announcement that it is buying Caption Health, Inc., a privately owned AI healthcare company that develops clinical applications to help with early disease detection, for an undisclosed sum. Caption Health uses AI to assist with ultrasound scans. The market for AI in healthcare is booming; according to Grand View Research, it is expected to grow from $22.4 billion in 2022 to $208.2 billion in 2030.
A new face for a veteran company with strong leadership
GE HealthCare officially became a stand-alone company on Jan. 4, in what H. Lawrence Culp Jr., chairman and CEO of GE, referred to as "our transformation into three independent companies focused on critical, growing sectors." GE held onto a stake totaling about 19.9% in the spinoff "to provide further capital allocation flexibility."
But as a division within GE, GE HealthCare goes back decades. Its website features an archive of press releases going back to the beginning of 2002. Then known as GE Medical Systems, it was already buying up medical software companies.
The president and CEO, Peter Arduini, only joined the company in January 2022, when it was still a division of GE. But he has extensive experience in medical devices, coming off a 12-year stint at Integra LifeSciences, a regenerative technology, surgical instrument, neurosurgical, and advanced wound care product company where he rose through the ranks to become president and CEO. Before that, Arduini was corporate vice president and president of the medication delivery division at another medical device company, Baxter International. He is also a board member of the pharmaceutical company Bristol-Myers Squibb and of the trade group Advanced Medical Technology Association (AdvaMed).
Another top executive, Jan Makela, president and CEO of GE HealthCare Imaging, had a longer experience at the GE parent company, he joined in 2000, stepping into a role as president and CEO of GE HealthCare Global Services from 2017 to early 2020. The industry experience of the leadership team should be reassuring to investors.
An amazing start to the company's first year on its own
GE HealthCare attributed the increase in its fourth-quarter earnings to growth in its Imaging, Patient Care Solutions (remote, data, and other products), and Ultrasound divisions, a nice broad basis for future growth. Net income for the quarter was $554 million, down 1.8% compared with the fourth quarter of 2021, and net income for the whole year 2022 came in at $1.9 billion, a 13.6% drop compared with 2021. The company attributed the drop to inflationary pressures and research and development costs.
The company is optimistic about 2023, projecting organic revenue growth between 5% and 7% year-over-year, and adjusted EPS in the range of $3.60 to $3.75 compared to 2022 stand-alone adjusted EPS of $3.38 (Non-GAAP measures). Analysts are in accord, pegging 2023 EPS for the company to come in between $3.67 and $3.73.
Although GE Healthcare is on a hot start, it's not void of risks. On Dec. 18 the company's Nuclear Medicine 600 and 800 Series imaging systems were recalled after it found two problems that combined could lead to a catastrophic fall of the 1,212-pound detector, "potentially crushing or trapping a patient, which may result in serious injury or death," the FDA said in an update. However, the company found the problem on its own, and no injuries or deaths have been reported. The company also did not report any write-offs related to this recall in its fourth quarter report, but they are unlikely to be significant in a corporation this size.
Since the beginning of 2023, GEHC's share price is up more than 30% to over $75. The outlook seems strong for the company, now that it has broken free of its venerable parent corporation and is adopting the hottest of technologies, AI, while continuing to focus on the imaging, ultrasound, remote, and data solutions it is known for.
