GE Healthcare (GEHC) is off to a strong start after being spun off by General Electric (GE) on January 4 with shares up by about 25%. Earlier this morning, the company reported its first earnings report as a standalone company, which validated the stock's strength heading into the report.
Surprisingly, there's only one analyst covering GEHC, so there's no consensus expectation to compare its results against -- although, we expect a copious number of estimates to come in soon. On an absolute basis, though, GEHC's Q4 results and FY23 outlook paint a promising picture of a company that's now capitalizing on a healthy demand environment in a more complete way. For instance, revenue increased by 13% on an organic basis, up from 10% last quarter, and 4% in 2Q22.Despite the stronger top-line growth, the initial knee-jerk reaction to GEHC's earnings report was negative. The weakness was primarily due to some profit taking as the company's quarterly results were mostly known already.
When GE issued its Q4 earnings on January 24, it also included financial metrics for the Healthcare segment for the last time. Additionally, on January 10, GEHC provided Q4 revenue guidance of $4.9 bln and offered its FY23 outlook, including its expectation for organic revenue growth of 5-7%.While there weren't many surprises within GEHC's earnings report, it did shed some light on the key catalysts that are driving the company's improved performance.
Most notably, the company highlighted the easing of supply chain pressures as an important factor. While operating as a business segment of GE, the unit struggled to attain enough components and materials to fully meet demand. In 1Q22, total orders increased by 8% to $4.8 bln, but revenue only grew by 2% as GE Healthcare dealt with ongoing supply chain challenges. In Q4, GEHC's book-to-bill ratio (defined as Total orders divided by Total revenues) was nearly at 1.0, reflecting an improved ability to fulfill its backlog of orders.GEHC's pricing actions are also having a positive impact and should have an even greater effect in 2023 as inflation cools.
The company reaffirmed its FY23 outlook for adjusted EBIT margin of 15.0-15.5%, representing a yr/yr expansion of 50-100 bps on a standalone basis. Bolstered by this margin expansion, and the anticipated 5-7% organic revenue growth, GEHC is forecasting FY23 EPS to increase to $3.60-$3.75 compared to $3.38 on a standalone basis in FY22.The main takeaway is that demand remains robust for GEHC as the digitization of healthcare, the expanding access to healthcare, and an aging population continue so support its growth. Unlike most of 2022, GEHC is now capable of fulfilling that demand, thanks to a supply chain situation that's finally improving.
