GE HealthCare Guidance Was Good. The Stock Dropped Anyway. -- Barrons.com

Al Root

Sometimes it's hard to make investors happy.

GE HealthCare Technologies hosted an analyst event on Thursday, during which the company provided updated long-term goals and guidance.

Everything looked fine -- but GE HealthCare's stock dropped anyway.

For 2024, the company expects earnings per share to fall between $4.25 and $4.35. Nothing wrong with that: Wall Street analysts tracked by FactSet are expecting per-share earnings of $4.29.

GE HealthCare also put out longer-term goals: organic sales growth is expected to fall between 4% and 6%, while operating profit margins could approach 20%-plus. Earnings per share growth should be about 10% on average for the coming few years. And free cash flow should work out to about 90% of net income.

"We are confident in our progress since spin and our path to accelerate growth driven by an exciting innovation pipeline," said CEO Peter Arduini in a news release. "We look forward to continuing to execute on our growth strategy to help clinicians provide more precise, personalized care for patients."

These are all strong points, and longer-term guidance was "in line with expectations," wrote BNP Paribas Exane analyst Navann Ty on Thursday, adding free cash flow conversion was a little better than previous guidance of 85%. She is "positive" on GE HealthCare stock and has a $94 price target for shares.

Citi analyst Joanne Wuensch, meanwhile, rates shares Buy and calls GE HealthCare a top pick. Her price target is $103 a share.

"We anticipate this [guidance] will be well received, and expect the [event] focus to be on the product pipeline, China recovery, and segment revenue growth," wrote Wuensch.

It wasn't that well-received. Shares lost 3.4%, closing at $82 apiece, while the S&P 500 and Dow Jones Industrial Average added 0.5% and 1.1%, respectively.

China might have done it. China is GE HealthCare's next "largest geography" after the U.S. Chinese sales of $2.8 billion in 2023 amounted to about 14% of total revenues.

Sales have been declining lately, as the company waits for the Chinese economy to improve. China came up a lot at the analyst event -- and it sounds as if the first half of 2025 will be sluggish again for GE Healthcare.

Tariffs were discussed, too. President-elect Donald Trump's plan to impose trade tariffs on Chinese imports could be a headwind for the company, according to Wall Street.

"We see what cards are dealt, and we try to obviously manage and adapt the best way," said GE HealthCare management.

Through Thursday trading, GE Healthcare shares have climbed about 6% higher in 2024, trading for about 17.5 times estimated 2025 earnings. The market trades for closer to 22 times.

GE HealthCare stock gets a discount, even though growth is expected to be similar to that of the overall market. Maybe that's an opportunity for investors when, and if, Chinese fears fade.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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November 21, 2024 16:26 ET (21:26 GMT)

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