Both stocks are in negative territory this year, but upcoming earnings reports could change how investors view their prospects.
Both stocks are in negative territory this year, but upcoming earnings reports could change how investors view their prospects.
In a year when the S&P 500 (^GSPC -0.02%) is up 13.8%, the declines in healthcare stocks such as Danaher (DHR +0.74%) (down nearly 2.7%) and GE Healthcare Technologies (GEHC +1.55%) (down 16.7%) are disappointing. Both stocks have something to prove to investors when they report third-quarter earnings in a few weeks, but the good news is they have a good chance of doing so, and their valuations suggest investors are likely to be rewarded if they do.
Here's why both stocks are primed to deliver on the upside in the fourth quarter and beyond.
Favorable valuations
First, here's a look at both companies' forward price-to-earnings (PE) ratios. As you can see, the forward ratios are significantly lower than the PE ratios both stocks have traded at in recent years.
Naturally, that's because of operational setbacks both companies have suffered. For GE Healthcare Technologies, the question is convincing the market that its margins are on the way to recovery. It can capitalize on the excellent order growth so far this year. For Danaher, it's about confirming that the bioprocessing shipments that were pushed out in the second quarter really are timing issues rather than any kind of continued destocking that will impact 2027.
GEHC PE Ratio (Forward 1y) data by YCharts.
GE Healthcare Technologies
There isn't a problem with orders; organic orders grew 11.1% in the second quarter, resulting in a book-to-bill ratio of 1.15, implying future revenue growth. The problematic issue for GE Healthcare is its margin challenges, driven by cost inflation in oil, chips, and freight. At the same time, the Patient Care Solutions (PCS) business reported a segment loss of $26 million in the second quarter, driven by a 13.5% year-over-year decline in sales.
Both issues appear to be resolvable, with management placing PCS under strategic review, a move that often results in disposals. As for the margin issues, management is calling out a second-half margin improvement led by higher pricing, new product introductions, and productivity actions taken in the first half.
Averytin News Financial update.