Hello, Reader.
In 1979, General Electric Co. (GE) introduced its famous tagline, “We bring good things to life.”
One of the things this iconic American company brought to life was its stock price, which soared more than 10,000% from the end of 1979 to its peak in 2000.
But shortly after that peak, the lights started flickering at GE, and its share price slumped for nearly two decades. Between 2000 and 2018, GE stock produced an abysmal 80% loss – leading to its ignominious eviction from the Dow Jones Industrial Average.
Enter Larry Culp, who became CEO in October 2018. The widely respected and heavily compensated executive accepted the daunting task of reversing GE’s long-term decline.
To spearhead GE’s turnaround, Culp proposed two years ago a major restructuring that would split the company into three distinct entities – each of which would become a stand-alone publicly traded company.
That action plan took its first giant step forward in January 2023 when GE spun out its healthcare operations as GE HealthCare Technologies Inc. (GEHC).
Then earlier today, the company co-founded by Thomas Edison completed its restructuring by splitting into GE Vernova (GEV), an energy spinoff that began trading on the New York Stock Exchange this morning, and GE Aerospace, which gets to keep the iconic “GE” ticker symbol.
So, in today’s Smart Money, let’s take a look at which one of these “baby GEs” is most worth your attention – and whether it should become a part of your portfolio…
Innovation Powering Growth
I’ve said it before… and I’ll likely say it again: GE HealthCare is interesting – both for what it is already and what it could become. As one of the oldest “new” healthcare stocks in the market, GE HealthCare is a blue-chip company with a formidable presence in the medical imaging industry.
Now that GE HealthCare is past its one-year anniversary, let’s see how doing on its path toward “becoming.”
Following that first year as an independent public company, GE HealthCare delivered excellent fourth-quarter and full-year earnings.
For the year, organic revenues grew 8%, which produced earnings per share of $3.04. The strength was widespread, as every one of the company’s regions and segments produced positive revenue growth. Importantly, recurring revenues now account for 45% of total company revenues.
The company exited the year with a record backlog of $19.1 billion, up $700 million sequentially. Innovation is powering much of that growth. Last year, the company once again topped the U.S. Food and Drug Administration’s list of AI-Enabled Device Authorizations with 58 devices – more than any other med-tech company.
As GEHC CEO Peter Arduini boasted on the earnings call…
Our new product vitality index, which measures new products contributing to orders in the year, was healthy at 26%. We launched more than 40 new innovations in 2023, many of which are AI and digitally enabled, bringing more opportunity to increase gross margin with these enhanced capabilities…
We’re actively pursuing AI across our product portfolio with a focused effort to expedite product development in 2024.
Essentially, GEHC’s AI solutions do not replace medical professionals; they assist them. The company’s AI-enabled devices and services operate alongside traditional medical practitioners to support and optimize their efforts.
GE HealthCare expects its momentum to continue into 2024. It issued guidance that calls for revenue growth of 7% to 11%, leading to free cash flow of $1.8 billion and EPS of $4.20 to $4.35.
To me, that makes this stock a great long-term hold.
The Future of Healthcare… and the Present
A year (and some change) out from GE HealthCare’s inception, it’s clear that the company is becoming a leader in its industry. And it’s using AI to do so.
Now, healthcare is not the way most people would think to invest in AI’s game-changing technology. But that’s a mistake, especially as most healthcare executives already have AI and automation strategies in place today.
As one healthcare CEO put it:
AI solutions are essential pieces of infrastructure at hospitals and health systems, and we have just begun to scratch the surface. There are so many more connections to make using AI – so many more lights to shine on all of the broken healthcare processes that stand between providers and patient care.
And that means industrywide AI adoption is set to explode over the next two years.
That, to me, will make GE HealthCare the long-term winner following GE’s breakup.
The fact is that the healthcare AI market is entering such an explosive growth phase that I’m issuing an AI Code Red.
AI may be the future of healthcare… but it’s also happening right now.
Regards,
Eric Fry
