Danaher Corporation (DHR) is a global provider of branded products and services for diagnostic and research activities addressing life science and environmental issues worldwide.
Headquartered in Washington, District of Columbia, the company operates with 20 subsidiaries and approximately 80,000 employees. DHR shares have fallen recently, losing about 10% over the past three months.
This should be temporary, as the stock has been caught up in the stock market rotation, which has seen investors exit certain sectors. These sectors include healthcare, while investors increased positions in other sectors such as energy, consumer defensive, and financial services.
These investors did this to take advantage of the sharp rise in oil and gas prices and hedge against worrying uncertainty or rebalance their positions ahead of an almost certain Fed rate hike.
The recent decline is not due to a lack of fundamentals. On the contrary, the company enjoys solid financial health, while returns from its operations are above the industry average. The context in which the company operates will also create further growth opportunities along the way.
Thus, I am bullish on this stock.
Q4 Earnings
For the final quarter of 2021, Danaher reported adjusted earnings per share of $2.69 (beating the median consensus estimate by $0.17) on total revenue of $8.1 billion. Revenue exceeded analysts’ forecast by $100 million.
Adjusted earnings per share rose nearly 30% year-over-year, while total revenue rose more than 20% year-over-year.
The company also reported full-year 2021 financials, notable for a nearly 35% year-over-year increase in operating cash flow to $8.4 billion and a more than 30% year-over-year increase in free cash flow through to $7.1 billion.
Outlook and Robust Prospects
To have an economy that continues to grow but that is at the same time fair, inclusive, and sustainable, modern society must be healthy and consume to support production while respecting the environment. Thus, on the latter aspect, society is called upon to reduce waste and polluting activities to the point of elimination.
Danaher and other industry players are supporting scientists to create a future-oriented society with the above characteristics.
Therefore, Danaher and other operators conduct their business in a very favorable environment and are considered strategic allies for the success of the target.
Danaher has the skills, human and financial resources to take advantage of growth opportunities that arise. One of those opportunities has been created by COVID-19, as science must now work to ensure life expectancy is impacted as little as possible by the effects of the pandemic, as well as vaccines and antiviral treatments.
Incredible resources are needed to fund studies on this topic, and Danaher, as a leader in diagnostic and research technologies, is sure to join the mission. The company can rely on the products and services of reputable brands to break into the next market.
Financial Condition
While the company could do better with working capital, underlying conditions are robust, as evidenced by an Altman Z-Score of 8.5 and a Piotroski F-Score of 7. Although total debt ($22.2 billion as of December 30, 2021) exceeds total cash on hand by 8.5 times, the interest coverage ratio of 31.4 shows that interest expense on all debt is easily paid.
Therefore, the stock should not be missing in the portfolio of long-term investors.
Dividend Record
The company has consistently paid dividends for 28 years. The dividend has grown 8.2% annually since 2017. Danaher currently pays out $0.21 per common share, which gives a 0.3% dividend yield as of this writing. While the S&P 500 yields 1.3%.
Valuation
The stock may not be cheap, despite shares changing hands below the 50-day moving average of ~$300 and below the 200-day moving average of ~$294.
It’s possible that some headwinds from the slowdown in underlying business performance, which the company expects this year, will push the stock price lower. However, I don’t expect this to result in a significant weakness that makes waiting for a better price worth considering. So I agree with the below consensus on Wall Street.
Wall Street’s Take
In the past three months, nine Wall Street analysts have issued a 12-month price target for DHR. The company has a Strong Buy consensus rating, based on eight Buys, one Hold, and zero Sell ratings.
The average Danaher Corporation price target is $342.89, implying 25.5% upside potential.
Conclusion
Temporary headwinds are pushing this stock down a bit. They may remain in place for the next few months. The stock is destined to grow very fast once it regains momentum. This will happen because Danaher’s business is built on solid foundations and contributes to the common global goal of sustainable while fair and inclusive growth.
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