Danaher (DHR) Shares Decline 10% YTD: What's Pulling It Down?
Shares of Danaher Corporation DHR have lost 10.2% in the year-to-date period compared with the industry’s 4.5% decline. The downside can be attributed primarily to a decline in demand for COVID-related products.
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What’s Ailing the Stock?
Danaher is plagued by weakness in the Biotechnology and Diagnostics segments due to a decrease in the sale of COVID-related products. In the Diagnostics segment, revenues declined 10% year over year in the first quarter due to lower COVID-related respiratory testing volumes. In the Biotechnology segment, revenues fell 16% year over year. Due to lower demand for COVID-19 testing, vaccine and therapeutics, Danaher expects total core revenues to decline in the high single digits for the second quarter and the full year.
Escalating cost of sales poses a threat to Danaher’s bottom line. The company’s cost of sales increased 8.9% year over year in 2022 due to inflation in raw material costs. Logistics problems and high freight costs have been weighing on the company’s operations. Despite the improvement, supply chain issues remain a major challenge for the company.
Given Danaher’s substantial international operations, it is exposed to headwinds arising from unfavorable movements in foreign currencies. In 2022, foreign currency translation had a negative impact of 4% on sales. In the first quarter, the same had a negative impact of 3% on sales.
What Lies Ahead for the Stock?
With a slowdown in the manufacturing sector, thanks to the Federal Reserve’s aggressive monetary policy tightening to curtail inflation, industrial demand has taken a hit. Amid a volatile environment as recession fears loom large, a turnaround in the manufacturing sector is not likely anytime soon.
With Danaher already grappling with weakness across its Biotechnology and Diagnostics segments, continued softness in manufacturing activities and the resultant impact on industrial demand pose a major challenge to the company. Given the company’s diverse operations, weakness in some end markets might be offset by strength across other end markets. Strong demand for advanced solutions and strength in the genomics consumables business within the Life Sciences segment should help the company partly offset the adversities.
Zacks Rank & Stocks to Consider
Danaher presently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked industrial companies are as follows:
Ingersoll Rand IR presently sports a Zacks Rank #1 (Strong Buy). The company delivered a trailing four-quarter earnings surprise of 12.6%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingersoll Rand has an estimated earnings growth rate of 14.8% for the current year. Shares of the company have jumped 46% in a year.
Graco GGG currently flaunts a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 7.9%, on average.
Graco has an estimated earnings growth rate of 16.4% for the current year. Shares of the company have rallied 38% in a year.
Flowserve FLS sports a Zacks Rank #1 at present. The company pulled off a trailing four-quarter earnings surprise of 2.5%, on average.
Flowserve has an estimated earnings growth rate of 64.5% for the current year. Shares of the company have gained 22% in a year.
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