Danaher Corporation (DHR)

Equity
US
Healthcare

RISK

RETURN

Key risk factors

Negligible price volatility

Strong & resilient to price shocks

Good trading liquidity

Key return factors

Greatly overvalued vs peers

Good margins and returns

Poor growth

Corporate actions & dividendsDividend of USD 0.270 with an ex-date of 28 Jun 2024.

Company profileDanaher Corporation designs, manufactures, and markets professional, medical, industrial, and commercial products and services worldwide. The company operates through three segments: Life Sciences, Diagnostics, and Environmental & Applied Solutions. The Life Sciences segment provides mass spectrometers; flow cytometry, genomics, lab automation, centrifugation, particle counting and characterization; microscopes; genomics consumables; and Gene and Cell Therapy. This segment also offers bioprocess technologies, consumables, and services; and filtration, separation, and purification technologies to the pharmaceutical and biopharmaceutical, food and beverage, medical, and life sciences companies, as well as universities, medical schools and research institutions, and various industrial manufacturers. The Diagnostics segment provides chemistry, immunoassay, microbiology, and automation systems, as well as hematology, molecular, acute care, and pathology diagnostics products. This segment offers clinical instruments, reagents, consumables, software, and services for hospitals, physicians' offices, reference laboratories, and other critical care settings. The Environmental & Applied Solutions segment offers instrumentation, consumables, software, services, and disinfection systems to analyze, treat, and manage ultra-pure, potable, industrial, waste, ground, source, and ocean water in residential, commercial, industrial, and natural resource applications. This segment also provides instruments, software, services, and consumables for various color and appearance management, packaging design and quality management, packaging converting, printing, marking, coding, and traceability applications for consumer, pharmaceutical, and industrial products. The company was formerly known as Diversified Mortgage Investors, Inc. and changed its name to Danaher Corporation in 1984. Danaher Corporation was founded in 1969 and is headquartered in Washington, the District of Columbia.

Valuation: Greatly overvalued

Multiple

TTM

NTM

P/E

44.20

44.00

PEG

4.50

P/B

3.60

3.40

P/S

8.60

8.10

P/FCF

35.00

33.70

EV/EBITDA

31.10

28.10

Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.

Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. The stock has outperformed its global peers from the same sector and industry (as shown above), surpassing them by 19ppts in total. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Neutral

The average target price is 233 and suggests 11% downside potential. Usually, this means a SELL recommendation among investment firms, or a recommendation to decrease one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 270.0. This translates into 3% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 200.2. This is equivalent to 24% downside potential in the worst case.

Profitability: Good

RoE

Danaher Corporation reported a return on equity (RoE) of 8.2% in the last 12 months, down from 9.2% in FY23. The market consensus projects an RoE of 9.2% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 5.2% in the last 12 months, a decrease from 5.6% in FY23. The market analysts predict that RoA will be 6.0% in FY24, again weaker than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 5.8%, below the peers. The consensus estimate for FY24 for RoCE is 6.9%, again behind the peers.

Net margin

EBITDA margin

Historically, DHR has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 19.5%, down from 19.9% in FY23. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 29.6% in the last 12 months, a decline from 30.0% in FY23.

RoIC / WACC = 1.1(average value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.1 in the past several years. This ratio implies a average shareholder value creation.

Growth: Poor

Revenue

EBITDA

EPS

Free cash flow

DHR reported revenue of USD 22 519mn in the last 12 months, down 6% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS fell 8% from FY23 to USD 5.96. Market expects EPS to reach USD 5.94026 in FY24.Revenue has been declining slowly over the past several years (negative), while EBITDA has grown slowly despite declining revenue thanks to decent cost control (overall negative-to-neutral). The positive effect of cost control was almost eliminated by a rapidly declining revenue, such that EPS's growth was mediocre (negative-to-neutral). The FCF trend is falling, a notch worse than EBITDA. We emphasize the highly volatile dynamics of EPS and EBITDA.

Dividends: Reasonable

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The risk of default is minimal. We note robust profitability, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and excessive margin volatility.

Volatility: Negligible

In normal market circumstances, DHR is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. We would also like to highlight the negligible intraday volatility of the instrument.

Stress-test: Negligible

In highly turbulent market conditions, DHR is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Low

DHR boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.