U.S.-China tariff de-escalation is positive for this stock: analyst

Investing.com -- Bank of America analysts say GE HealthCare (NASDAQ:GEHC) should benefit from signs of softening in the U.S.-China trade war, arguing that the worst of the tariff-related pressure may already be priced into the stock.

“The softening stance from the administration on the US-China trade war over the last couple of days should be positive for GEHC,” BofA wrote in a note Thursday. 

The analysts said GEHC has underperformed peers, falling 18% since April 2 versus a 4% decline in the iShares U.S. Medical Devices ETF (IHI).

BofA believes investors have already factored in “a 20+% annualized EPS hit from current tariffs” and most expect a guidance cut when the company reports first-quarter results next week. 

“We assume the day-to-day tariff volatility will continue but we believe the newsflow probably gets more positive from here,” BofA said.

GEHC has been more exposed than peers, with BofA calling U.S. tariffs on Chinese imports “likely the largest headwind.” 

On its fourth-quarter call, GEHC estimated a 10% tariff would cost $20 million, a 1% EPS hit. BofA calculates that the current 145% tariff could amount to a 13% EPS impact.

GEHC also generates 11% of its sales from China, but BofA said “we do not have great visibility” into how much of its China-sold equipment is imported from the U.S. 

Based on estimates, the bank says that if half of GEHC’s China imports originate from the U.S., that could add up to another 7% EPS headwind.

Despite the risks, BofA maintained its Neutral rating and $97 price target on the stock, saying it expects “more clarity from GEHC when it reports Q1 results next Wednesday,” which should help frame its exposure for investors.

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