The artificial intelligence (AI) megatrend is set to drive growth for companies across multiple sectors. For instance, legacy healthcare companies aim to leverage AI capabilities to improve patient care and solve industry-wide challenges.
One such blue-chip healthcare company is GE Healthcare Technologies (GEHC), which is valued at $31.05 billion by market cap. Let’s see why I’m bullish on this healthcare stock right now.
GE Healthcare: What You Need to Know
GE Healthcare provides medical technology, pharmaceutical diagnostics, and digital solutions. It has four primary business segments that include:
- Imaging: Provides scanning devices, clinical applications, and service capabilities.
- Ultrasound: Offers screening, diagnosis, treatment, and monitoring of certain diseases.
- Patient Care Solutions: Specializes in providing medical devices, consumables, services, and digital solutions.
- Pharmaceutical Diagnostics: Supplies diagnostic agents to the radiological and nuclear medicine community worldwide.
The company was spun off from General Electric (GE) in January 2023. Since the spin-off, GEHC has returned 25% to shareholders.
GE Healthcare reported overall revenue growth of 4% in 2022, despite a sluggish and challenging macro environment, thanks to a combination of strong demand and more favorable pricing. Sales hit $18.34 billion in 2022, up from $16.63 billion in 2019. Operating cash flows stood at $2.1 billion, while free cash flow was $1.8 billion, providing GEHC with enough flexibility to de-lever its balance sheet and target accretive acquisitions.
As a publicly listed company, GE Healthcare has focused on optimizing its operating model and supply chain to offset elevated inflation levels. It aims to enhance customer value by leveraging its scale with a goal to increase sales, profit margins, and cash flows.
In the first six months of 2023, GE HealthCare increased sales by 8% year over year, while adjusted earnings grew by 22%. The company’s robust growth suggests the demand for its advanced medical devices is quite healthy.
Moreover, GE Healthcare aims to expand its adjusted EBIT (earnings before interest and tax) from 14.5% in 2022 to 20% over time. An expansion of its bottom line should help GEHC increase its dividend payout, too. It currently pays shareholders an annual dividend of $0.12 per share, indicating a yield of just 0.09%.
GE Healthcare Bets Big on AI
GE Healthcare has announced significant collaborations and investments to gain traction in the healthcare segment. This includes the acquisition of Caption Health, which should enable GEHC to expand its ultrasound business through AI-powered image guidance. GEHC also disclosed its intention to acquire IMACTIS to strengthen capabilities within the expanding computed tomography interventional guidance market.
GE Healthcare has a strategic partnership with MediView to integrate augmented reality solutions with interventional medical imaging, and signed an agreement with Ulrich Medical to offer a multi-dose media injector in the U.S.
In June, GEHC launched an AI-powered deep learning product that increases the processing time for MRI imaging significantly. Sonic DL, as the tool is known, is FDA-approved, and will benefit heart patients who may find it difficult to hold their breath while taking an MRI.
In May, GE Healthcare launched Precision DL, another FDA-approved deep-learning solution that improves the image quality in PET scans. Each of these initiatives, coupled with the GE brand name, should allow GEHC to acquire customers at a fast pace.
What Do Analysts Think About GEHC?
Out of the 11 analysts covering GEHC, six recommend “strong buy,” and five recommend “hold.” The average target price for GE Healthcare stock is $88.67, which is 27% above current trading prices.
Analysts have gotten more bullish lately, too. In mid-August, Wells Fargo analyst Larry Biegelsen started coverage of GEHC at “buy” with a $90 price target, citing an expected increase in demand for imaging services in the wake of a new Alzheimer's drug approval. And just last week, Joanne Wuensch of Citi started coverage of the shares at "buy" with a price target of $82. In a note, the analyst attributed her bullish outlook to GEHC's strong competitive footing and attractive valuation, among other factors.
Notably, GE Healthcare stock is down about 20% from its all-time highs, as it lost steam after a 25 million secondary share offering in June. Now, priced at 16 times forward earnings, GEHC is quite cheap at current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
