GE Healthcare Division Poised For Continuous Growth

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Global healthcare equipment industry has been growing for the past few years and is expected to continue its growth driven by aging U.S. population, infrastructure development in emerging economies and disruption in technology. U.S. is the largest market for healthcare equipment industry, due to its excellent healthcare infrastructure and high per capita income. Asia-Pacific is the fastest growing market for the healthcare industry and is likely to remain the center of attraction for all the key players including GE due to region’s increasing healthcare spending. General Electric’s (NYSE: GE) healthcare division is one the key players in U.S. with about 11% market share and is likely to benefit from its huge geographic presence including Asia Pacific, its expertise in technology advancement and financial strength.

 

How Big is the Healthcare Equipment Industry?

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Global Healthcare equipment industry was estimated to be about $315 billion in 2015 and it grew at a CAGR of 4.8% between 2011 and 2015. This includes sales of Diagnostic & Clinical equipment, Molecular Medicine, and Information Technology & services to Hospitals, medical & dental services, Governments, and households. Healthcare equipment market is driven by technology disruptions as equipment that offers higher resolution images or more accurate monitoring are preferred by doctors and hospitals.

U.S. accounts for nearly 26% of the global healthcare market and is likely to remain the largest consumer and producer of healthcare equipment due to its high income per capita and good healthcare infrastructure. Although North America and Europe accounts for the majority market share, demand from Asia Pacific will drive the industry going forward due to increasing consumer expenditure in the region, which resulted in about 10% CAGR in Asia Pacific’s medical device market.

 

Healthcare Industry Likely to Maintain its Strength in the Short Term

The Healthcare Equipment industry continued its growth trajectory in 2016 and we expect this to continue its growth going forward.  Key drivers are the increasing demand for healthcare services from emerging economies and increasing healthcare expenditure of an aging U.S. population. Asia Pacific’s consumer spending on pharmaceutical and medical equipment is next only to North America and Europe.  Construction of hospitals and clinics, and the establishment of public health insurance in the region, makes it a bright spot for investment for major players such as GE Healthcare, Siemens Healthcare and Intuitive Surgical. Overall, U.S. and Europe remain the key markets for healthcare equipment companies in the near term. However,  Asia Pacific and other developing countries remain the long-term growth driver.

About 68% of GE’s overall healthcare sales came from U.S. and Europe in 2015 and if these markets continue their growth trajectory, we estimate GE’s EBITDA will grow at a CAGR of roughly 5%. GE is expanding its presence in Asia Pacific, which is evident from the fact that GE’s orders from the region have been growing at more than 10% for the past few quarters.

 

GE Healthcare Will Benefit from GE’s Geographical Stretch and Financial Stability

GE’s Healthcare division manufactures, sells and services a wide range of medical equipment, including diagnostic & clinical equipment, molecular medicine and information technology & services. Hospitals, clinical laboratories, medical institutes and governments are the primary customers of GE healthcare. GE’s global market share in healthcare equipment has remained close to 3.5% in the last few years and is expected to go up in the coming years due to its market leading products, its presence in developing countries and its financial strength. GE has about 11% market share in U.S. healthcare market and its R&D is well supported by its strong financials and capital division which makes its healthcare division revenues fairly stable.

We currently forecast GE’s healthcare revenue to grow at a CAGR of about 6% for the next 4 years, keeping in mind the industry trajectory, its geographical reach in Asia Pacific and company’s overall financial strength. However, if the industry grows by more than 7% due to the efforts of developing countries and U.S. administration’s reforms in healthcare, GE healthcare revenues has about 15% upside potential.

 

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of General Electric

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