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Can Danaher (DHR) Maintain its Beat Streak in Q4 Earnings?

Zacks Equity Research

Danaher Corporation DHR is scheduled to report fourth-quarter 2018 results on Jan 29, before the market opens.

The company’s average trailing four-quarter positive surprise is 4.34%, beating estimates all through. Notably, in the last reported quarter, the company delivered earnings of $1.10, topping the Zacks Consensus Estimate of $1.07 by 2.80%.

In the past three months, shares of the company have gained 9.2% against 4% decline of the industry it belongs to.

Let’s see how things are shaping up for this announcement.

Factors to Impact Q4 Results

Danaher anticipates to steadily benefit from its Danaher Business System (“DBS”). Within the DBS framework, the company’s key strategic initiatives with respect to product development, better product quality and others have been significantly boosting its key financials over the last few quarters. For instance, in third-quarter 2018, DBS contributed appreciably to the company’s core revenue growth of 6% and an earnings improvement over the year-ago quarter. The same trend is likely to continue, aiding the company's results in the fourth quarter of 2018 as well.

Notably, for the quarter to be reported, Danaher anticipates adjusted earnings of $1.25-$1.28 per share. Core sales are predicted to grow 4%. Moreover, for the full year, the company raised its adjusted earnings per share projection to $4.49-$4.52 from the previous forecast of $4.43-$4.50. Further, the company’s spin-off — Dental business segment — is likely to add shareholder value.

For Life Sciences, product launches related to higher growth biologics and genomics markets plus positive results across major product lines and geographies, are likely to continue prove beneficial. Strong end markets in life science, research and industrial applications should consistently supplement the segment’s sales performance in the upcoming quarters as well. Given this backdrop, the Zacks Consensus Estimate for revenues from Danaher's Life Sciences segment in the to-be-reported quarter is currently pegged at $1,746 million, reflecting 7.4% growth year over year.

Solid product offerings and a positive impact from acquired assets might continue to drive Environmental & Applied Solutions. Notably, the Zacks Consensus Estimate for the segment’s revenues in the fourth quarter stands at $1,120 million, higher than $1,078 million in the year-ago quarter.

However, rising cost of sales has been a major concern for Danaher. The company's cost of sales increased 8.3% year over year in the first nine months of 2018. Additionally, Danaher's selling, general and administrative plus research and development expenses rose 9.8% year over year, over the same time frame. Escalating costs, if unchecked, will persistently hurt the company's margins in the quarters ahead.

Further, extensive governmental regulations on import laws, export control and unfavorable movements in foreign currencies might continue to restrict the company’s growth.

Earnings Whispers

Our proven model provides some idea on the stocks that are about to release earnings results. Per the model, a stock needs to have a combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The case with Danaher is given below:

Earnings ESP: Danaher has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.27.

Danaher Corporation Price and EPS Surprise

Danaher Corporation Price and EPS Surprise | Danaher Corporation Quote

Zacks Rank: Danaher carries a Zacks Rank #3, which increases the predictive power of ESP. However, its 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Picks

Here are some companies you may want to consider as our model shows that these have the right combination of elements to beat estimates this earnings season:

Griffon Corporation GFF has an Earnings ESP of +37.50% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Emerson Electric Co. EMR is a Zacks #3 Ranked stock and has an Earnings ESP of +0.84%.

Illinois Tool Works Inc. ITW is a #3 Ranked player and has an Earnings ESP of +0.12%.

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