GE HealthCare's stock slides after UBS downgrades to sell

By Ciara Linnane

Analysts are forecasting margin disappointment ahead

GE HealthCare Technologies Inc.'s stock slid 3.3% early Monday, after UBS downgraded the stock to sell from neutral and cut its price target to $66 from $86, warning of margin disappointments ahead.

Analysts led by Graham Doyle said a combination of a recent slowing of order momentum, tough comparables and a lack of pricing tailwinds has left them below consensus on certain earnings metrics. GE HealthCare was spun out of General Electric Co. in January and houses the company's medical device business.

"Our analysis of GE HealthCare's (GEHC) order intake and the broader market suggests the 3% growth seen year-to-date is set to worsen in the fourth quarter," they wrote in a note to clients.

"This combined with a lack of pricing tailwinds in 2024 and toughening end-markets in Patient Care means we are 1% below consensus 2024 revenues and 4% below adjusted EBIT."

If Chinese-device installations are as affected as peer Siemens Healthineers (XE:SHL) suggested, UBS said there's a further 2.5% downside to its 2024 EBIT forecast.

See also: GE HealthCare beats Q3 profit estimates

The analysts were referring to the recent downturn in activity in the Chinese medical sector, which was caused by a government anti-graft drive that has targeted corrupt doctors and senior staff at hospitals. Siemens Healthineers Chief Financial Officer Jochen Schmitz told the Jefferies 2023 London Healthcare Conference earlier in November that the downturn was "relaxing already," according to the news website Medical Device Network.

The analysts said it would take several years of higher R&D costs before GE Healthcare can credibly compete in the premium end of the imaging market. It will take at least that long for the company to catch up with peers.

"GE Healthcare Technologies is in our view set to expand margins meaningfully over the midterm but by less than management guides to and consensus estimates," the analysts wrote.

The stock is trading in line with the sector and with Siemens Healthineers, despite much lower revenue growth, said the note. It also trades at a "meaningful premium" over close peer Philips (PHG) for the same revenue compound annual growth rate.

GE HealthCare stock has gained 26% in the year to date, while the S&P 500 has gained 18.8%.

-Ciara Linnane

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11-27-23 0818ET

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