GE HealthCare Technologies (GEHC)

Total return at 5 years: 10.2%/year = 10.0% appreciation + 0.2% dividend. The target price ($109) is ex-dividend; the $1 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $112 · Multiples $88) exceeds the market price ($68).

Today — fairly valued: at $68 trades ~23.2% below its value discounted to today (~$88); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($109) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$55.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($68) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-6.0%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.4 bn of owner earnings in year 5 (vs ~$2.4 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on NOPAT (EV/NOPAT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Rolling grid: year 0 is the real TTM to 31-Mar-2026 (revenue $20,979M, XBRL). It is valued at the enterprise level, on a multiple of after-tax operating income, on a normalized basis — TTM earnings (an 8.8% margin) are the trough of the peak tariff impact of 2025 (~$245M to operating income) before the IEEPA refunds recognized in the second quarter of 2026. Year 1 anchors to the midpoint of the guidance reaffirmed on 29-Jul-2026 (organic revenue +3.0% to +4.0%; adjusted EPS $4.80-$5.00 ≈ a normalized net margin of ~10.4%). At the enterprise level: the multiple's metric is pre-interest, so the cash ($2,261 million) and the debt ($10,129 million) enter the bridge and the funding is charged only once. The present-value lens keeps its own convention, with a flow already after interest. The exit multiple follows the medical technology band [16,22] on after-tax operating income; base 18× (adverse 15× / favourable 21×), with the position set by a ROIC barely above the 10% bar (weighed down by the goodwill from the GE spin-off and from Nihon Medi-Physics) and moderate terminal growth (~6%) supported by a record backlog ($23.9bn, book-to-bill 1.15×). Capex below D&A (maintPct 1.0: almost all capex is maintenance, Greenwald). No share path: net buybacks are small (~0.3-0.4%/year); the surplus is redeployed into bolt-on M&A (Nihon Medi-Physics) rather than accumulating as cash (reinvestsExcess).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $109 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $68, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $109 in 5 years plus $1 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $88. Against the current market price ($68), the margin of safety is 23.2% (trades below the maximum → there is margin) and the total return at that price would be 10.2% annually.

• Multiple vs quality. 19× on earnings still depressed by tariff peak—normalized multiple against 2026 guided earnings is substantially lower.
• Reverse-DCF. Current price appears to discount growth below base case, near adverse scenario.
• Margin of safety. Total return +10% well above method's 15% floor—ample margin of safety.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ! CFROIC backs up the ROIC (71%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC exceeds cost of capital. ROIC ~11% barely above 10% bar, with invested capital burdened by spin-off and recent acquisition goodwill.
• Margin and stability. TTM EBIT margin ~12.6% (GAAP), depressed by peak 2025 tariff impact; reaffirmed guidance points to adjusted EBIT margin 15.4-15.7% for 2026.
• Cash quality. Guided free cash flow ~$1.6bn for 2026; working capital consumes cash significantly during order backlog growth (higher inventory and contract assets tied to record backlog).

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

GE HealthCare's engine is volume of equipment sold and service contracts × price, with Pharmaceutical Diagnostics monetizing contrast/radiopharmaceutical doses × price. Most relevant leading indicator is order backlog ($23.9bn) and book-to-bill (1.15×), anticipating conversion to reported revenue with several quarters of lag.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-mar-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Guided organic growth (+3.0% to +4.0%) is consistent across segments, with Pharmaceutical Diagnostics as engine and Patient Care Solutions as drag.
• Growth driver. Organic orders +11.1%, 1.15× book-to-bill, and record $23.9bn backlog anticipate acceleration of reported revenue ahead of recent trend.
• Deceleration and cycle. Consolidated revenue was nearly flat in 2024 (+0.6%) before recovering to +4.8% in 2025—trajectory is uneven, with Patient Care Solutions in persistent decline.

• Relevant in 10 years (recurrence). Essential medical equipment and supplies for hospital diagnosis; structural demand tied to aging populations and expanded access to healthcare.
• Pricing power. Moderate: capital equipment sales compete with Siemens Healthineers, Philips, and Canon, with price pressure from Chinese providers like United Imaging and Mindray in emerging markets.
• Moat and direction. Stable moat: integrated imaging plus pharmaceutical diagnostics portfolio and extensive installed base, but under pressure from independent service organizations and right-to-repair laws.
• Capital cycle. Sector with multiple well-capitalized global competitors (Siemens Healthineers, Philips, United Imaging); no extreme entry barriers beyond regulatory and manufacturing scale.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)6.3x
• –Liquidity (current ratio)no data
• !Cash quality (CFROIC vs ROIC)CFROIC backs 71% of ROIC
• !Value creation (ROIC − 10% bar)+1pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.8x — no over-investment
• !Float / working capitalConsumes cash $0.7 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.7% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt ~$10.1bn vs ~$2.3bn cash; moderate net debt for medical equipment manufacturer with recurring cash flow.
• Coverage and cash. Access to $3.5bn of unused revolving credit lines; guided free cash flow ~$1.6bn for 2026.
• Spin-off legacy. Inherited pension and post-retirement obligations from GE ($5.2bn non-current) are structural liability to monitor, though currently generating net income.

• Skin in the game. Insider ownership not quantified in available factsPack (detail pending proxy DEF 14A); Arduini leads since spin-off with prior track record in sector.
• Capital allocation. Prioritizes reinvestment (R&D, capex) and complementary M&A (Nihon Medi-Physics, $2.3bn) over dividend (low payout) and buyback (modest, no material net share reduction).
• Integrity / normalization. Company transparently breaks out tariff, restructuring, and Nihon Medi-Physics impacts in non-GAAP reconciliation.

• Motivated sellers via depressed earnings from transitory impact: TTM results carry peak 2025 tariff impact (~$245M to operating income and ~$285M to cash flow) before IEEPA refunds recognized only in Q2 2026—market extrapolates depressed earnings that management's own reaffirmed guidance already shows normalizing.
• Missing buyers from complexity: recent GE spin-off (only ~3 years as independent company), ongoing segment reorganization (Imaging + AVS merger into Advanced Imaging Solutions), and active strategic review of Patient Care Solutions that could lead to divestiture—structural complexity discourages clean coverage and valuation.
• Short-term noise concentrated in minor segment: weakness of Patient Care Solutions (organic -1.5% FY2025, negative margin Q2 2026) dominates headlines despite Imaging/AVS and Pharmaceutical Diagnostics—higher-weight segments—growing healthily and sustaining record backlog.

It trades at a real discount to value, though short of the required margin of safety. Source of opportunity is identifiable (motivated sellers via TTM earnings depressed by tariffs, plus missing buyers from post-spin-off complexity), distinguishing this from low multiple that simply tends toward lower intrinsic value.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -2%/year (-11% total): the margin of safety protects the downside. The bull (+20%/year, +150% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Tariffs and global trade. Material impact declared in 2025 (~$245M to operating income, ~$285M to cash flow); normalization through IEEPA refunds not guaranteed beyond already recognized.
• Patient Care Solutions. Persistent revenue contraction and negative margin in segment (-1.5% organic FY2025, -3.8% EBIT margin Q2 2026); strategic review adds uncertainty.
• Independent service organizations and right-to-repair. Structural erosion of own maintenance revenue, the most recurring and highest-margin revenue source.
• Geopolitical exposure (China, Russia). Localization requirements in China and Russia sanctions threaten market share and supply capacity in those markets.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 11% above the 10% bar, but the margin is limited (+23%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a multiple/growth of 3.8 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 9% (EBIT/EV) + ROIC 11% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -6% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -3%/yr, bull-scenario ceiling +20%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -6%, within what we project (5%) — the story squares with the numbers.