Trade War Thaw: A Potential Boon for GE Healthcare

Recent indications of a more conciliatory stance regarding trade relations between the United States and China could considerably benefit GE Healthcare (NASDAQ: GEHC). Analysts at Bank of America (NYSE: BAC) suggest that the company may have already absorbed the brunt of the negative impacts stemming from tariffs, setting the stage for potential recovery and growth.

Underperformance Signals Possibility

GE Healthcare’s stock performance has lagged behind its industry peers. As April 2nd, GEHC shares have declined by 18%, a stark contrast to the 4% drop observed in the iShares U.S. Medical Devices ETF (IHI). This underperformance, according to Bank of america, suggests that investors have already priced in considerable tariff-related headwinds.

Specifically, analysts believe the market has factored in an annualized impact of more than 20% on BPA due to current prices. this anticipation of a substantial earnings hit could mean that any positive developments in trade relations would be disproportionately beneficial for GEHC.

Tariffs: A Major Headwind

Bank of America identifies American tariffs on Chinese imports as probably the biggest obstacle for GE Healthcare, making them more vulnerable compared to competitors. During their Q4 conference call, GEHC estimated that a 10% tariff rate would cost the company $20 million, impacting earnings per share (EPS) by approximately 1%. With current rates significantly higher, the potential impact is substantial.

To illustrate the potential impact, consider that the current tariff rate, wich BofA estimates at 145%, could represent a 13% impact on BPA. This highlights the meaningful financial burden imposed by the trade dispute.

China’s role in GE healthcare’s Revenue Stream

China represents a significant market for GE healthcare,accounting for 11% of its total sales. However,the extent to which equipment sold in China is imported from the United States remains unclear. Bank of America notes that we do not have great visibility on this aspect, adding a layer of uncertainty to the overall assessment.

Estimates suggest that if half of GE Healthcare’s Chinese imports originate from the United States, this could create an additional 7% headwind on BPA. This underscores the interconnectedness of the company’s financial performance with the trade dynamics between the two economic superpowers.

Navigating Uncertainty: Awaiting Clarity

Despite the inherent risks, Bank of America maintains a neutral advice and a $97 price target on GEHC shares.The firm anticipates that the upcoming first-quarter results will provide more clarity from GEHC, enabling investors to better understand the company’s exposure and navigate the uncertainties surrounding the trade landscape.

As the global economy continues to evolve, monitoring the interplay between trade policies and corporate performance remains crucial for investors. GE Healthcare’s upcoming earnings report will be a key indicator of its resilience and adaptability in the face of ongoing geopolitical and economic shifts.