How GE HealthCare Technologies Is Shaping Up for 2023

One of the big investing themes for 2023 is the potential for companies to expand margins as cost inflation eases due to higher interest rates and a slowly improving supply chain. But there are two types of companies in this environment. The first type is companies whose top lines are pressured by the same forces set to slow inflation, and the second type is those with growth prospects that will hold up in a slowdown. I think GE HealthCare Technologies (NASDAQ: GEHC) is a strong candidate to be in the latter camp, and that's what investors should be looking for in 2023. To understand the company's trajectory this year, it's essential to appreciate just how badly the company was impacted by supply chain difficulties last year. Regular General Electric (NYSE: GE) followers will recall that the management team started the year expecting the healthcare segment (which ultimately became GE HealthCare Technologies) to post organic revenue growth in the low-single-digit to mid-single-digit range. In addition, margin expansion was supposed to lead to $3.1 billion to $3.3 billion in profit, and free cash flow (FCF) was supposed to be above the $2.7 billion generated in 2021. None of these estimations proved accurate (GE's management tempered expectations for the segment through 2022). Margins declined meaningfully in the first quarter. Management lowered full-year profit expectations to $3 billion in the second quarter, and then to "at least $2.6 billion" in the third quarter, ultimately reporting $2.7 billion for the year.  Meanwhile, full-year FCF came in at just $2.1 billion. Note that all the figures above are on a "GE basis" for ease of comparison. The GE HealthCare numbers, including $1.8 billion in FCF, include the impact of carve-out adjustments.Continue reading
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