Here's Why GE Healthcare Shares Popped Higher Today

The Motley Fool · 1d ago

Key Points

  • Order growth and backlog signal potential revenue and margin improvements.

  • Management expects cost actions and new products to boost margins in the coming years.

Shares in GE Healthcare (NASDAQ: GEHC) were higher by 12% at around 11 a.m. today on the back of its second-quarter earnings report. It's been a difficult year for the company, but the latest results, particularly the order book, are signaling an improvement ahead. Here's why.

GE Healthcare's recovery is in progress

The second-quarter earnings came in ahead of expectations. Still, management reiterated its previous full-year guidance: organic revenue growth of 3%-4%, adjusted EPS of $4.80-$5.00, and free cash flow (FCF) of approximately $1.6 billion.It's superficially unimpressive, but the devil is in the detail of the order book, and specifically the 11.1% growth in orders, taking its book-to-bill ratio to 1.15 times, and its backlog to $23.9 billion.

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To understand why this is so important, you have to go back to the first-quarter results, when management was forced to lower its full-year earnings guidance on the back of a $250 million increase in costs from memory chips, oil, freight, and raw materials. The cost increase is problematic for a company like GE Healthcare, which has relatively long sales cycles, because it can't react quickly to raise prices and has to work through a backlog secured at prices before the cost inflation hit.

A happy investor.

Image source:Getty Images.

Why the orders growth is great news

Consequently, the orders growth implies an improvement in pricing. In addition, CFO James Saccaro said the company's cost actions "hold in the second quarter," and he expects them "to contribute more meaningfully to margin in the second half of the year and in 2027." CEO Peter Arduini noted that several new products launched, including those with embedded AI, would also drive pricing improvements.

All told, the market is pricing in improved revenue and margins from the orders booked in the quarter, and GE Healthcare is starting to overcome the cost increase hit in 2026.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends GE HealthCare Technologies. The Motley Fool has a disclosure policy.