Starting as a manufacturing company, Danaher Corporation (DHR) evolved into a global science and technology innovator, which is committed to help consumers solve complex challenges and improve quality of life.
Leveraging its diversified portfolio, the company is expected to generate massive returns in the upcoming months and has the capacity to grow at a faster rate than the average market. On a year-to-date basis, the stock has gained 9%, and has gained 156% over the past three years. Here is why DHR seems to be a good bet:
Sustainable Growth Over the Years
The diversified conglomerate’s revenue grew at a CAGR of 12.8% over the past three years. The company’s EBITDA and EPS also grew at a CAGR of 17.3% and 16.7%, respectively, over the same time period.
Highly Profitable Acquisitions
DHR’s sustained growth over the decades has been largely driven by the company’s strategic acquisitions. The company has acquired hundreds of businesses since 1984, including Cepheid, Integrated DNA Technologies, AVT, and Pall. Also, more than 50% of the company’s total revenue today has been acquired over the past seven years.
Last year was also a “transformative year” for DHR as it acquired Cytiva, the biopharma business of General Electric Company’s (GE) life sciences division, on March 31, 2020, and further solidified its position as a global science and technology leader. Moreover, on February 1, 2021, Cytiva acquired Vanrx Pharmasystems, which makes robotic aseptic filling machines to fill vials, syringes, and cartridges with reduced risk and increased speed to patients.
Important Role in Fight Against COVID-19
The company has played a pivotal role in the fight against coronavirus with its diagnostic tests and life sciences research tools.
Cepheid launched the first rapid molecular test for COVID-19 in March 2020 that provides highly accurate results within 45 minutes and the company received Emergency Use Authorization (EUA) from the United States’ Food and Drug Administration (FDA) for their Xpert Xpress SARS-CoV-2/Flu/RSV test, which is a rapid molecular diagnostic four-in-one test for detection of the viruses causing COVID-19, Flu A, Flu B and RSV from a single patient sample.
Also, Beckman Coulter Life Sciences’ viral RNA extraction kits and automation support research workflows related to COVID-19 real-time PCR testing while Pall is helping scale up vaccine production processes at an unprecedented pace.
Reporting revenue growth across all three segments (Environmental & Applied Solutions, Life Sciences and Diagnostics), the company’s total sales increased nearly 39% year-over-year to $6.76 billion for the fourth quarter ended December 31, 2020. Operating profit margin for the same period increased 390 bps to 23.7%. Net earnings increased 42.5% sequentially to $1.20 billion and non-GAAP EPS increased 62.5% year-over-year to $2.08.
Moreover, DHR has an impressive earnings surprise history; it beat consensus EPS estimates in each of the trailing four quarters.
Favorable Outlook Even in Post-Pandemic Scenario
As the company is engaged in the environmental space too, delivering precision instrumentation and advanced purification technology to help analyze, treat and manage the world’s water quality among others, the company is expected to grow significantly even after the pandemic subsides.
Analysts expect the company’s revenue to increase 40.3% for the quarter ending March 2021, 17.2% this year and 4.9% next year. Its EPS is expected to grow 20.8% this year, 6.4% next year and at a rate of 12.2% per annum over the next five years.
Also, Wall Street analysts expect the stock to reach $269.44 in the near term, which indicates a potential upside of about 13%.
POWR Ratings Reflect this Favorable Outlook
DHR has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with the weighting of each optimized to improve overall performance.
Our rating system also evaluates each stock based on eight different categories. DHR has a grade of A for Growth which is quite justified given its significant increase in revenue and EPS over the past years. Also, analysts expect the company to witness significant revenue and EPS growth this year and beyond.
The stock’s grade of A for Sentiment is consistent with the potential upside of DHR that the analysts predict. Moreover, the stock also has a grade of B for Stability.
We have also given DHR grades for Value, Momentum and Quality. Click Here to get all of DHR’s ratings.
Out of 89 stocks in the A-rated Industrial – Machinery industry, DHR is ranked #43.
There are several other top-rated stocks in the same industry, click here to access them.
Based on DHR’s diversified portfolio, strong financials and strategic acquisitions, it is likely the stock will continue to see gains in 2021. The company is strategically positioned to not only gain amid the pandemic but also in the post-pandemic world.
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DHR shares fell $0.30 (-0.12%) in after-hours trading Tuesday. Year-to-date, DHR has gained 9.06%, versus a 4.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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