General Electric (NYSE: GE) completed the spinoff of GE Healthcare Technologies, Inc (NASDAQ: GEHC) in December 2022, and the first earrings report is in. The news affirms the company’s decision to split into 3 companies as it is a path to unlocking shareholder value. The results show that GE Healthcare Technologies can grow to drive cash flow and free-cash-flow which all plays into the dividend outlook.
At this time, GE Healthcare does not pay a dividend, but speculation they might is all over the internet. What this means for income investors is an opportunity to get into a high-quality dividend stock before it even begins paying a dividend. This event could trigger an upsurge in share prices (and share prices are already trending higher).
GE Healthcare Technology Has A Solid Foundation For Growth
GE Healthcare Techologies, Inc’s Q4 report did not get the market moving, but that is most likely because there was no mention of a dividend or capital returns. There was mention of revenue and earnings that came in above the Marketbeat.com consensus estimate, growth in all segments and guidance that is at least in line with the analyst's expectations.
The revenue of $4.93 billion is up 8% versus last year’s stand-alone results, with strength centered in the Imaging and Patient Care Solutions segments. They grew 11% and 7% YOY, 8% and 10% organic, with slightly slower growth in the Ultrasound and Pharmaceutical Diagnostics segments. In regard to the analysts, revenue is 270 basis points better than expected.
The margin was also better than expected, although it is down on a YOY basis. The GAAP earnings came in at $1.21 versus last year’s $1.24 but also $0.15 better than the consensus, and the adjusted earnings are a dime better.
The takeaway is that not only are full-year results strong in the cash flow department but R&D expenses are also included in the results. This means there is room for capital returns on top of reinvestment in the business, which is good news. The FCF cash flow came in at $1.8 billion for the year with $4.18 per share in earnings.
And the guidance is equally optimistic from the cash flow perspective if it wasn’t the catalyst for share prices that it could have been. The guidance calls for YOY organic revenue growth of 5% to 7% with 50 to 100 bps of EBIT margin growth for adjusted EPS of $3.60 to $3.75.
This is up from $3.38 in 2022 but has the consensus of $.371 near the top end, which doesn’t leave much room for outperformance. The takeaway, however, is that R&D is again impacting the results, and there is still room for the eagerly anticipated 1st dividend declaration (that may or may not come).
The Analysts Are Nibbling On GE Healthcare Technology
Marketbeat’s analyst tracking tools have picked up two analysts' ratings for GEHC so far, and the news is favorable. There is no price target yet, but the rating is a Moderate Buy based on one Buy and one Hold recommendation. The Q4 earnings release and guidance should attract more attention; the question is how much attention and what they will say.
There’s no news yet on institutional holdings, but GE has a 70% institutional ownership, and all GE shareholders received stock in GEHC so we can expect it to be high.
The Technical Outlook: GEHC Pulls Back On Guidance
Shares of GEHC pulled back about 2.0% in premarket trading and may fall further before he uptrend resumes. Because it is in an uptrend, the uptrend is based on the post-IPO bottom formed in early January and the break-out that has happened since. Based on this pattern, shares of GEHC have a firm level of support at $65 and a fairly strong one at $68 so don’t be surprised if the market bounces and begins to rebound soon.
It is trading at only 19X the low-end of guidance compared to 25X for Abbott Laboratories (NYSE: ABT), 26X for Boston Scientific (NYSE: BSX) and 46X for Intuitive Surgical (NASDAQ: ISRG).