Over the past few years, results at GE (NYSE:GE) Healthcare have posted good growth. Sales from the business have grown at a compounded annual growth rate (CAGR) of 4.5% during 2009-12 to reach $18.3 billion in 2012, and GE anticipates its strong performance to continue in 2013.  The company provides medical imaging systems, diagnostics, patient monitoring systems, drug discovery tools, medical equipment repair services and related IT solutions in this field.
GE has employed multiple strategies to achieve this growth in its healthcare business. Primary among these is a strong focus on research and innovation, which maintains the company’s competitive advantage and an expanding footprint in the developing regions particularly Asia-Pacific and Latin America, which has allowed the company to benefit from the rising healthcare spending from these regions. At the same time, GE has improved its margins in this business to 16% on gains from headcount reduction and exits from low-margin products. Savings from internal structural simplification like de-layering of management structure in Europe and reduction of U.S. into three zones from five has also contributed to margin expansion. The company anticipates its margins to continue to grow in 2013. 
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GE Healthcare constituted around 12% of GE’s total sales in 2012. We currently have a stock price estimate of $22.16 for GE, approximately 5% below its current price.
GE Healthcare’s Advanced Product Portfolio Underpins Its Growth
The healthcare market is driven by technology. Imaging machines, patient monitoring systems and other tools that offer higher resolution videos/images or more accurate monitoring are preferred by doctors and hospitals. Thus, it becomes imperative for equipment companies like GE, Siemens, Philips, Toshiba and others to invest in their research, to continually improve their offerings.
GE has invested in its technology to occupy leadership positions in ultrasound, computed tomography (CT) and molecular imaging segments, and it is fast progressing in magnetic resonance (MR). Overall, diagnostic and clinical equipment like MR systems, CT/PET scanners and X-ray technologies generated around $9 billion in sales for GE in 2012. Medical equipment repair, data management and healthcare related IT services generated another $6 billion, while molecular medicine products which include tools used in drug discovery and agents used in scanning procedures grossed over $3 billion in sales for GE in 2012. 
GE’s Increasing Footprint In The Developing Regions Drive Its Growth
Apart from relying on growth from innovation, GE has steadily expanded its presence in the fast growing developing markets. The company has established research centers in China and India outside of the U.S. and Europe, and has established several manufacturing plants across Asia-Pacific, the Middle-East and Latin America. These investments have generated strong returns as GE healthcare’s sales have increased by 22%, 19%, 17% and 15% from China, ASEAN (Association of South-East Asian Nations), India and Latin America respectively, during 2009-12. 
In comparison, the company’s healthcare sales from the developed regions have grown at more moderate rates. As a result, the share of developing regions in the company’s healthcare equipment sales have grown to 35% in 2012, from 20% in 2009.  Looking ahead, GE plans to continue to increase its penetration in these emerging markets, which will allow it to occupy a larger share of the growth anticipated from these markets.
At the same time, even in many developed markets, GE will likely benefit from the rising share of health expenditure in the government’s total spending. In the U.S., France, Japan and many other developed countries, health expenditure as a percentage of the gross domestic product has increased significantly over the past decade and aging populations in many of these countries will likely continue to drive up healthcare spending from these countries over the coming years.
High Growth From Life Sciences
Additionally, in the Life Sciences segment, which provides tools for research on cells and proteins, and drug discovery and manufacturing, GE has experienced a compounded annual growth rate of 10% over the past six years.  The company is making further investments in this field to broaden its offerings, which will likely maintain these strong growth rates in the future. Most major pharmaceutical companies including GlaxoSmithKline, Johnson & Johnson (NYSE:JNJ), Pfizer (NYSE:PFE), Roche, Merck, Novartis and Sanofi are clients of GE in this segment.Notes: