GE HealthCare Technologies (GEHC -0.25%), 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.
