GE HealthCare's Solid Demand And Sensible Margin Targets: Morgan Stanley Sees Potential Upside Despite Street's High Expectations

Morgan Stanley analyst Patrick Wood initiated coverage on GE HealthCare Technologies Inc GEHC with an Equal-Weight rating and a price target of $76.

The analyst said the company's peers had seen a strong trend almost across the board in Q1, with Abbott Laboratories ABT customers having managed to work through staffing shortages, Koninklijke Philips N.V. PHG, Siemens Healthineers AG SMMNY, and Intuitive Surgical Inc ISRG all beating in Q1 and GEHC itself hitting +12% organic sales growth.

The analyst argues that imaging as an end market has never been especially cyclical and that the demand picture for GEHC in good shape and organic growth expectations of +4-5% as well underpinned.

The analyst sees an important shift in the CT technology landscape towards photon counting, largely due to superior output. In the mid-term, photon counting could add 350 basis points to price/mix in the CT margin and potentially a positive surprise for GEHC.

A key part of the GEHC investment case is moving to high-teens adjusted EBIT margins which the analyst thinks makes sense.

The challenge for GEHC's stock is that Street mid-term numbers reflect much of the margin improvement program and already look reasonable, said the analyst.

While the analyst recognizes $76 PT has small downside risk to current share price (~3%), there could be upside risk given strong procedure volumes and positive capital spend commentary into 2Q that has elevated expectations.

Overall, the analyst thinks demand is looking solid for GEHC, and margin targets are sensible, with new photon counting work suggesting solid mid-term opportunity.

Price Action: GEHC shares are trading lower by 0.69% at $77.27 on the last check Tuesday.