General electrical spinoff GE Healthcare Technologies (GEHC 8.32%) Shares were up 8.6% by 11:30 am today. The move comes after the market digested its previously announced preliminary fourth-quarter and full-year earnings, as well as its preliminary outlook for 2023.
According to the release, organic fourth-quarter revenue growth will be 12%. Meanwhile, adjusted earnings before interest and taxation (EBIT) will come in above the forecast of $2.6 billion at the investor day in December. Free cash flow (FCF) is expected to come in at the “lower end” of the $2.1 billion to $2.3 billion range provided in December. For reference, these figures exclude carve-out synergies from the spinoff from GE.
The results are good, and the guidance for 2023 is also positive. Management expects organic revenue growth of 5% to 7% with margin expansion and FCF conversion to 85% adjusted net income.
The release highlights the stock’s value proposition. GE HealthCare began life as a company generating $2.1 billion in FCF, with the stock trading at just 13.6 times its FCF. It is attractive to a world-class imaging and ultrasound company. Additionally, its high-margin pharmaceutical diagnostics (agents and tracers that help scan and diagnose) do well alongside the imaging business.
Additionally, management has scope for margin expansion in imaging, its largest business, as it seeks to close the gap between its historical 10% to 13% margins. Siemens Healthcare Imaging segment has adjusted EBIT margin of 20.5% in 2022.
GE HealthCare will report results on January 30. If the details align with the headline guidance given in the preliminary figures, investors can expect a positive reception. As a result, healthcare stocks look like a good value.
Lee Samaha has no position in any of the stocks mentioned. Motley Fool has no position in any of the stocks mentioned. Motley Fool has a revealing policy.