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Things continue to look up for GE Healthcare stock this year. Shares of the medical technology company jumped roughly 9% on Thursday after delivering solid fourth-quarter results and providing prudent 2025 guidance. While the Club stock left much to be desired in 2024, these numbers boosted shares that were already bouncing off their most recent lows set in mid-December. Revenue in the three months ended Dec. 31 rose 2% year over year to $5.32 billion, just shy of the $5.33 billion consensus, according to LSEG. Adjusted earnings per share (EPS) totaled $1.45, well ahead of the $1.26 estimate, LSEG data showed. On an annual basis, adjusted EPS jumped 22.9%. GEHC 1Y mountain GE Healthcare’s stock performance over the past 12 months. With Thursday’s advance, GE Healthcare was on track for a record close and its first close above $90 a share for the first time since mid-October. The stock fell hard on times in the final three months of 2024 after a really strong summer saw the stock touch a then-all-time high in late September. We booked profits at that time, but it was still tough to watch GE Healthcare end the year with such a thud, likely driven by the rise in bond yields, which raises borrowing costs for the hospitals that use financing to buy GEHC’s expensive equipment such as MRI machines. We added to our position once during the slide, at roughly $82 a share in late November. Sentiment on the stock — and the broader health-care sector , for that matter — has been much improved to start 2025, though, which gave us a chance to book some more profits last week and reduce our risk into earnings in case things went awry. That was not the case. GE Healthcare shares entered Thursday’s session up nearly 10%, and the earnings report suggests the rally has room to go. We’re reiterating our hold-equivalent 2 rating on GE Healthcare shares but upping our price target on the stock to $100 apiece. GE Healthcare Why we own it : GE Healthcare is the global leader in medical imaging, diagnostics, and digital solutions in health care. Its split from General Electric in 2023 enabled the now-standalone company to invest more aggressively in R & D, leading to new product innovations, especially in artificial intelligence. The combination of new, higher-priced products along with the optimization of its business post-split creates an underappreciated margin expansion story. The rollout of new Alzheimer’s disease therapies and heart disease diagnostic agent Flyrcado are additional longer-term tailwinds. Competitors : Philips and Siemens Most recent buy : Nov. 22, 2024 Initiated : May, 17, 2023 Bottom line There is plenty to like in the company’s fourth-quarter numbers, such as the sizable beat on adjusted EPS and a quarterly record for adjusted operating margin, which at 18.7% easily surpassed estimates for 17.2%. GE Healthcare has said it believes its operating margin can expand to “20-plus percent” over time, and on Thursday’s conference call, finance chief Jay Saccaro said the fourth-quarter results give management “more confidence in that, plus.” As seen in the chart below, operating margin can also be called earnings before interest and taxes (EBIT). In a sign of momentum for the business, order growth in the quarter accelerated to 6% — its best since the second quarter of 2023 — and the company ended the year with a record backlog of $19.8 billion, up $200 million from the end of September. Its fourth-quarter book-to-bill ratio of 1.09 was its highest since being spun out of former parent General Electric in early 2023. Anything above 1 for that metric indicates the company received more orders in the period than it fulfilled. In the third quarter, GE Healthcare’s book-to-bill ratio was 1.04. The company also ended the year with 85 artificial intelligence-enabled products with authorizations from the U.S. Food and Drug Administration, up from 58 a year ago. That’s one of the most in health care, according to company executives. Guidance Arguably the best part of GE Healthcare’s report, though, was its 2025 guidance. Some highlights from the numbers include adjusted EPS in the range of $4.61 to $4.75. The midpoint of that range is above the LSEG consensus estimate of $4.66. Executives expect additional profitability improvement ahead, guiding full-year adjusted operating margin in the range of 16.7% to 16.8%, compared with 16.3% in 2024. That guidance factors 10 basis points of impact from tariffs. A basis point is equal to 0.01%. Additionally, organic revenue growth is expected to be between 2% and 3%, including a 1.5% hit tied to foreign exchange. The reason GE Healthcare’s guidance shines is because it incorporates two key headwinds for its business — a prolonged sluggish demand environment China and tariffs on Chinese imports to the U.S. — which should help bake in potential downside surprises from those dynamics. The EPS guidance implies between 3% to 6% year-over-year growth, inclusive of a 1 percentage point impact from tariffs. The measured approach to its Chinese business, in particular, is welcome news. The company in July lowered its full-year organic growth outlook due to China weakness, and it was a drag on its subsequent earnings report, too. Sure, the challenges were industrywide as economic stimulus in China efforts took longer to materialize into order growth, but that didn’t change the fact that company-specific financial impact was quite real. Commentary Based on what we heard Thursday, management seems to be doing a better job of keeping Wall Street’s expectations for a meaningful turnaround in check. CEO Peter Arduini said the company’s China business saw a “slight improvement, evidenced by orders growth” in the fourth quarter. Still, its guidance assumes that China sales will be negative in the first half of 2025, followed by sequential improvement across the third and fourth quarters. That leads to an overall expectation of a low-single-digit sales decline in China in 2025. This strikes us as likely conservative, but that’s exactly what we wanted to see. A final thing to call out: GE Healthcare is preparing for a number of product launches this year — most notably Flyrcado, a diagnostic agent that can improve the detection of coronary artery disease. Flyrcado, which received FDA approval in September, has significant sales potential in the coming years, but that’s likely to take some time to materialize. Flyrcado is set to launch in earnest in April and generate around $30 million in revenue this year, Arduini said. The company has said Flyrcado may be at least a $500 million annual sales opportunity by 2028, though some Wall Street analysts believe it could be double that. Flyrcado’s rollout is something to watch this year and figures to be a growing topic of conversation around the company going forward. (Jim Cramer’s Charitable Trust is long GEHC. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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GE Healthcare booth is seen ahead of the 2022 China International Fair for Trade in Services (CIFTIS) at China National Convention Center on August 28, 2022 in Beijing, China.
Yi Haifei | China News Service | Getty Images
