GE Healthcare (NASDAQ: GEHC) stock price has bounced back in the past few months, helped by the overall recovery of American equities and the view that it is a bargain company. It rose to a high of $88.51 on Thursday, its highest level since April 29th. It has risen by over 17% from its lowest point in June.
Company with a big moat
GE Healthcare is a leading company in the healthcare industry, where it manufactures some of the most complex machines widely used worldwide. It operates as an oligopoly since its core industry is dominated by three firms, including Siemens Healthineers and Philips.
In imaging, its biggest segment, the company makes molecular imaging solutions, computed tomography, magnetic resonance, and image-guided therapies among others. It is also a leading player in ultrasound, patient care solutions, and diagnostics. GE Healthcare makes money by selling these products globally and then servicing them.
The company emerged as an independent company in 2022 when it was spun off from the main GE. It started its life as an independent publicly traded company trading at $52 and then jumped to a record high of $94.40 on March 8.
GE Healthcare is facing numerous tailwinds, which could help its business continue doing well in the coming years. Population in key developed countries like in the US is aging, rising the need for medical checkups and illnesses.
Additionally, GE Healthcare is a leading player in the diagnostics industry, a fast-growing sector because of the theranostics market.
Also, GE Healthcare has another advantage in terms of the intangible assets and the high switching costs among its clients. Ideally, most hospital systems tend to maintain one service provider because of the complexity of switching to other products.
The other intangible is in the wide supply chain network that the company has cultivated over the last decades.
GE Healthcare earnings download
The GEHC share price has done well after the company published its recent financial results. Its numbers revealed that its quarterly revenues rose to $4.839 billion from $4.81 billion in the same quarter in 2023.
Its revenue rose because of higher volumes and prices. As mentioned, GE Healthcare makes substantial sums of money in selling equipment and servicing items it has sold to customers. As part of its selling contracts, the company pledges to offer a 24-hour servicing provision.
The sale of its products came in at $3.2 billion while services rose to $1.62 billion. For the first half of the year, its product sales dropped slightly to $6.25 billion while services rose to over $3.23 billion.
GE Healthcare’s profits continued rising, albeit at a slow pace. Net income for the quarter rose to $435 million while its half-year figure was over $823 million.
The company expects the second half of the year to be a bit challenging because of its China business, which is facing substantial headwinds. China, with a population of over 1.2 billion people, is one of GE Healthcare’s top markets. Its free cash flow is expected to come in at $1.8 billion.
GE Healthcare valuation
Most analysts, including Jim Cramer, have a bullish outlook of the GE Healthcare stock. The most bullish ones are from Stifel, Mizuho, William Blair, and Evercore ISI. Goldman Sachs and Bank of America have a neutral rating.
Altogether, the average estimate of the GE Healthcare stock among analysts is $95, higher than the current $87.29.
GEHC trades at a forward P/E multiple of 18.55, which is lower than the S&P 500 average of 21, which is understandable because of its slower growth metrics. Its price-to-sales ratio is 2.05 while the enterprise value to EBITDA multiple is 13.7.
Analysts at Morningstar estimates that the company’s fair value is $98. They cited its five-year revenue growth rate in the mid-single digits with its operating profit margin rising to mid-to-high teens by then. The report added:
“For our 15-year stage two forecast period, we project normalized earnings growth in the low single digits. We subtract the company’s unfunded pension liabilities, which were $4.6 billion at the end of 2023, from our enterprise value. We assume a weighted average cost of capital of 6.7%.”
GE Healthcare stock price analysis
Turning to the daily chart, we see that the GEHC share price has bounced back in the past few months. It has remained above the 50-day moving average and the crucial resistance point at $83.08, its highest point in June 2023.
On the negative side, the stock has formed a rising wedge chart pattern, which is a bearish sign. The Relative Strength Index (RSI) has also formed a rising wedge. Therefore, while the stock has more upside in the long term, there is a possibility that it will have a bearish breakout. If this happens, the stock will likely retest the support at $83.
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