GE HealthCare Technologies (NASDAQ:GEHC)A third of the industrial giant that was once General Electric saw its shares plunge 13.7% by 1:30 p.m. ET after reporting a narrow profit decline on Tuesday.
Looking at earnings, analysts forecast that GE HealthCare would earn $0.91 per share (adjusted for one-time items) on revenue of $4.8 billion in the first quarter of 2024. Instead, the company reported earnings of $0.90 per share and revenue of $4.6 billion.
GE HealthCare’s first quarter sales and earnings
Revenue fell 1% in the quarter instead of growing as expected, which was one of the reasons investors were disappointed. GE HealthCare also pointed out that its book-to-bill ratio was a paltry 1.03, suggesting that the likelihood of revenue increasing significantly in the near term is slim.
On the positive side are the net profit margins did The increase was up 10 basis points, and profits rose significantly – up 6% on an adjusted basis and up nearly 100% calculated under generally accepted accounting principles (GAAP).
By the way, GAAP earnings were $0.81 per share.
Is GE HealthCare stock a sell?
As for guidance, management did not provide GAAP guidance for 2024 earnings, saying only that adjusted earnings will be between $4.20 and $4.35 per share – growth of 7% up to 11% year-on-year. At the midpoint of this forecast range, this would mean that 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 leads (which seems expensive).
And that’s the good news. Based on this year’s free cash flow (FCF) forecast of $1.8 billion, GE HealthCare stock sells for a multiple of about 22.5, giving the stock a price-to-FCF ratio of about 2 .5 corresponds. (And both of these valuations become even more expensive when you factor GE HealthCare’s $7.3 billion net debt load into the equation.)
While it’s encouraging that management is forecasting faster sales and profit growth throughout the year, GE HealthCare stock is essentially just too expensive today. Investors are right to sell it.
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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.
“Why GE HealthCare Technologies Stock Just Plunged 14%” was originally published by The Motley Fool