General Electric (NYSE: GE ) completed the spinoff of GE Healthcare Technologies, Inc. (NASDAQ: GEHC) in December 2022 and the first earring report is in effect. The news confirms the company’s decision to split into 3 companies as a way to unlock shareholder value. The results suggest that GE Healthcare Technologies can grow to drive cash flow and free cash flow, which plays a role in the dividend outlook.
GE Healthcare doesn’t currently pay a dividend, but speculation that it might is all over the internet. What that means for income investors is an opportunity to get their hands on a high-quality dividend stock before it even starts paying a dividend. This event could cause a spike in stock prices (and stock prices are already rising).
GE Healthcare technology has a solid foundation for growth
GE Healthcare Technologies, Inc’s fourth-quarter report didn’t move the market, but that’s most likely because it didn’t mention a dividend or capital return. It mentioned revenue and earnings that topped the Marketbeat.com consensus estimate, growth across all segments and guidance that was at least in line with analyst expectations.
Revenue of $4.93 billion was up 8% from last year’s standalone results, with strength concentrated 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. Earnings were 270 basis points better than expected, according to analysts.
Margin was also better than expected, although it was down year-on-year. GAAP earnings came in at $1.21 versus last year’s $1.24, but were also $0.15 better than consensus and adjusted earnings were a penny better.
The bottom line is that not only are the full year results strong in the cash flow department, but R&D spending is also factored into the results. This means there is room for capital returns in addition to reinvestment in the business, which is good news. FCF cash flow reached $1.8 billion for the year with $4.18 per share in earnings.
And the guidance is equally upbeat from a cash flow perspective, if it weren’t for the share price catalyst that could have been. Guidance calls for annual organic revenue growth of 5% to 7% with 50 to 100 basis points of EBIT margin growth for adjusted earnings per share of $3.60 to $3.75.
That’s upside from $3.38 in 2022, but there’s a consensus of $0.371 near the top end, which doesn’t leave much room for upside. The bottom line, however, is that R&D is once again impacting results and there is still room for the eagerly anticipated first dividend declaration (which may or may not come).
Analysts bite GE Healthcare’s technology
Marketbeat’s analyst trackers have raised two analyst estimates 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 recommendation and one hold recommendation. The fourth quarter earnings release and guidance should garner more attention; the question is how much attention and what they will say.
No news yet on institutional holdings, but GE has 70% institutional ownership and all GE shareholders received shares in GEHC, so we can expect them to be high.
The technical outlook: GEHC withdraws from guidelines
Shares of GEHC retreated about 2.0% in premarket trading and could fall further before the uptrend resumes. Since it is in an uptrend, the uptrend is based on the post-IPO low formed in early January and the breakout that followed. Based on this pattern, GEHC stock has a solid support level at $65 and quite strong at $68, so don’t be surprised if the market bounces back and starts to recover soon.
It trades just 19 times below guidance compared to 25 times for Abbott Laboratories (NYSE: ABT )26X for Boston Scientific (NYSE: BSX ) and 46X for Intuitive Surgery (NASDAQ: ISRG).
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