Daily Stock Watch: Danaher (DHR) Share Price Rises

By Kirsteen Mackay

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The Danaher (NASDAQ: DHR) share price is rising as Q2 results please investors. Does this mean Danaher stock is a buy?

Danaher (NASDAQ: DHR) stock reported its Q2 earnings today, ending July 1, 2022. And the DHR share price is rising in response. 

Danaher recorded Q2 2022 adjusted earnings per share (EPS) of $2.76, up 12% Y/Y. This surpasses FactSet's consensus of $2.35 by 17.5%.

Meanwhile, revenues rose 7.5% Y/Y to $7.75bn, beating a FactSet consensus estimate of $7.29bn by 6%. And operating cash flow reached $2bn, while non-GAAP free cash flow reached $1.7bn.

Rainer M. Blair, President and CEO, stated,

We are pleased with our strong start to 2022. Our teams executed well in a challenging environment to deliver high-single digit core revenue growth, double-digit adjusted earnings per share growth and $2bn of operating cash flow. We were particularly encouraged with the high-single digit growth in our base business and believe we gained market share across the portfolio.

Danaher is comprised of high-quality franchises in attractive end markets with meaningful recurring revenues and durable business models. We believe the combination of our strong portfolio and talented team—all powered by the Danaher Business System—provides a strong foundation in today's dynamic operating environment and positions us well for the balance of 2022 and beyond.

What Is Danaher?

Danaher Inc (NASDAQ: DHR) is a medical company operating in Life Sciences, Diagnostics and Environmental & Applied Solutions. This Fortune 500 global science and technology innovator is committed to helping its customers solve complex challenges while improving the quality of life worldwide.

Danaher boasts a portfolio of world-class brands and has leadership positions in health care, environmental and applied end-markets. With more than 20 operating companies, Danaher's globally diverse team comprises approximately 80,000 associates.

The company was founded by Steven M. Rales and Mitchell P. Rales in 1984 and is headquartered in Washington, DC. 

How Does Danaher Make Money?

Danaher makes money from three main sectors: Life Sciences, Diagnostics and Environmental & Applied Solutions. Within each of these sectors, the company owns several independent businesses, all contributing to total sales.

In Q2, the Life Sciences division contributed $3.9bn in sales. Diagnostics contributed $2.5bn in sales, while Environmental & Applied Solutions contributed $1.2bn in sales.

The operating profit margin for Life Sciences slipped 100 basis points due to acquisitions. The Diagnostics operating profit margin gained 340 basis points, and Environmental & Applied Solutions gained 70 basis points.

Danaher Stock Financials

Danaher stock has a price-to-earnings ratio (P/E) of 29.6, compared to the industry average of 1. Its price-to-book value (P/BV) is 4.3, above the industry average of 1. DHR stock offers shareholders a 0.4% dividend yield. 

The DHR share price is down 14% year-to-date. 

During Q2, 2022, Danaher’s overall revenues rose 7.5% Y/Y. And during the six months ended July 1, 2022, overall revenues increased 9.5%. The impact of foreign currency exchange rates decreased revenues by 3.5%.

DHR Share Price Growth Potential

A large part of Danaher’s growth strategy is mergers and acquisitions (M&A). The company announced no less than ten acquisitions in 2021, exceeding $10bn in value.

Danaher has acquired hundreds of businesses since 1984. In recent years, notable additions to the Danaher portfolio include Cepheid, Integrated DNA Technologies, AVT, and Pall.

During the six months ended July 1, 2022, Danaher acquired two businesses for total consideration of $77m in cash, net of cash. The businesses complement existing units of its Life Science and Environmental & Applied Solutions segments. In each case, the aggregate annual sales of these two businesses at the time of acquisition were $7m.

Interestingly, more than 50% of Danaher's total revenue today has been acquired in the past seven years.

The company always looks for a good fit, ensuring quality and strategic value come first. It targets innovative science and technology companies whose businesses will benefit from the Danaher Business System (DBS).

Danaher has logged eight consecutive years of dividend growth. So, although 0.4% is not a particularly impressive dividend yield, at least investors can feel reassured that the company is committed to paying it.

Danaher Stock Risks

Danaher is a massive business affected by many global challenges that investors should bear in mind.

  • Health care is a notoriously competitive business sector, and the industry is undergoing a period of significant change. 

  • COVID-19 continues to pose risks to parts of Danaher’s business and its financial statements.

  • Being such a large business with a global footprint, inflation and supply chain challenges are also of concern.

  • A strong dollar can weaken foreign currencies hurting earnings in some jurisdictions.

These are just a few of the current concerns. Investors should also consider risks such as adverse weather conditions, IT malfunction or hacking, regulatory compliance and the risks of M&A.

Russia-Ukraine Conflict

The war in Ukraine is affecting businesses worldwide, and Danaher is no exception.

Danaher suspended sales prohibited by sanctions and suspended the shipment of products to Russia, except products to diagnose and treat patients and producing vaccines and therapeutics.

In Q1, 2022, Danaher recorded a pre-tax charge of $43m, primarily related to the impairment of accounts receivable and inventory and accruals for contractual obligations pertaining to Russian operations. The company continues to monitor the military, social, political, regulatory and economic environment in Ukraine and Russia and will consider further actions as appropriate.

Should You Invest in Danaher Stock? 

As a $200bn company, Danaher stock is unlikely to go bust. However, its current valuation is potentially high. Nevertheless, its sheer size and varied income streams give it clout. Life Sciences is a booming area of growth, and Danaher stands to benefit. 

While the company has steadily grown through M&A, it’s also quick to divest any companies dragging it down. 

Last year Danaher brought in $29.5bn in revenue. Around 75% of this is recurring revenue which provides stability and is something investors love to see. 

There are several risks to investing in Danaher stock, as noted above. Given the uncertainty present in the current stock market environment, potential shareholders should consider all eventualities before rushing to buy Danaher stock. 

Nevertheless, broker consensus at FactSet gives DHR stock an Overweight rating with a share price target of $318.35. 

Analyst Daniel Brennan of Cowen & Co reiterated his Buy rating on Danaher stock with a $343 share price target on July 21. At the same time, analyst Deane M Dray of RBC Capital Markets reiterated his $301 DHR share price target on Danaher stock.

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Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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