GE HealthCare Technologies(NASDAQ: GEHC), one-third of the industrial behemoth that used to be General Electric, saw its shares crater 13.7% through 1:30 p.m. ET after reporting a narrow earnings miss Tuesday.
Heading into earnings, analysts forecast GE HealthCare would earn $0.91 per share (adjusted for one-time items) on $4.8 billion in the first quarter of 2024 sales. Instead, the company reported a $0.90 per-share profit and sales of $4.6 billion.
GE HealthCare Q1 sales and earnings
Sales for the quarter declined 1% instead of growing as they were expected to do, which is one reason investors were disappointed. GE HealthCare also noted that its book-to-bill ratio was an anemic 1.03, implying little chance of sales ticking significantly higher in the near term.
On the plus side, net profit margins did tick up 10 basis points, and earnings moved markedly higher -- up 6% on an adjusted basis and up nearly 100% as calculated according to generally accepted accounting principles (GAAP).
GAAP earnings, by the way, were $0.81 per share.
Is GE HealthCare stock a sell?
Turning to guidance, management did not give a GAAP forecast for 2024 earnings, saying only that adjusted earnings will range from $4.20 to $4.35 per share -- 7% to 11% growth year over year. At the midpoint of that guidance range, this would imply GE HealthCare is an 18 price-to-earnings (P/E) stock growing at 9%, resulting in a price-to-earnings-to-growth (PEG) ratio of 2 (which seems expensive).
And that's the good news. Valued on its free-cash-flow (FCF) projection of $1.8 billion this year, GE HealthCare stock sells for closer to a 22.5 multiple, giving the stock a price-to-FCF ratio of about 2.5. (And both these valuations get even more expensive once GE HealthCare's $7.3 billion net debt load is factored into the equation.)
While it's encouraging to see management forecast faster sales and earnings growth as the year progresses, when you get right down to it, GE HealthCare stock simply costs too much today. Investors are right to sell it.
Should you invest $1,000 in GE HealthCare Technologies right now?
Before you buy stock in GE HealthCare Technologies, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and GE HealthCare Technologies wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 30, 2024
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
