We issued an updated research report on Danaher Corporation DHR on Apr 15.
The conglomerate, with a $101.8-billion market capitalization, currently carries a Zacks Rank #3 (Hold). Many tailwinds and headwinds are impacting its performance.
Let’s delve deeper.
Factors Favoring Danaher
Projections for Q1: Danaher anticipates reporting healthy results for its three business segments — Life Sciences, Diagnostics, and Environmental & Applied Solutions — in the first quarter of 2020. Results will likely be driven by solid businesses for Radiometer, Cepheid, Pall and ChemTreat.
It predicts first-quarter revenue growth of 3%, with rise in core sales (non-GAAP) of 4.5%.
Inorganic Activities: The company has been investing in acquisitions over time. It acquired Integrated DNA Technologies in April 2018, Blue Software in July 2018 and Labcyte Corporation in January 2019. In March 2020, it closed the acquisition of General Electric Company’s GE BioPharma business. The buyout is anticipated to boost Danaher's biologics workflow solutions of the Life Sciences segment.
Beside acquisitions, Danaher believes in divesting businesses to enhance value of its shareholders. In September 2019, the company divested its dental business.
Shareholder-Friendly Policies: Danaher believes in rewarding shareholders handsomely through dividend payouts. It distributed dividends of $526.7 million in 2019, reflecting growth of 21.5% from the year-ago period.
It is worth mentioning here that the company announced a hike of one cent per share in its quarterly dividend rate to 18 cents in February 2020. We believe that healthy cash flow will support it to return more value to shareholders in the quarters ahead.
Factors Working Against Danaher
Coronavirus-Related Worries: The company believes that its results will depend on the geographical spread of the pandemic, its duration and the governmental restrictions imposed in response to the crisis. For now, it had suspended its previously mentioned projections for 2020 — including adjusted earnings per share of $4.80-$4.90 and core sales growth of 5%.
Also, the company noted that demand for its more instrument-oriented businesses will be adversely impacted in the first quarter.
Debts, Costs and Forex Woes: High debts increase financial obligations and in turn, hurt profitability. Danaher’s long-term debts were $21.5 billion at the end of the fourth quarter of 2019. This balance reflects a year-over-year increase of 122% and a sequential hike of 30.1%. So far in 2020, the company offered €1.75 billion senior notes in March 2020 and €750 million in April.
Additionally, high costs and expenses might be concerning for Danaher. Its international presence too has exposed it to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies.
Share Price Performance and Earnings Estimate Revision: Market sentiments have been against Danaher for quite some time now. Its stock price has decreased 5.8% in the past three months compared with the industry’s decline of 24.3%.
Furthermore, the Zacks Consensus Estimate for the company’s earnings has been lowered by 9.4% to $4.94 per share for 2020 and by 5.9% to $5.85 per share for 2021. The decline came due to five downward revisions for 2020 against one upward, and four downward against one upward movement for 2021.
Danaher Corporation Price and Consensus
Danaher Corporation price-consensus-chart | Danaher Corporation Quote
Stocks to Consider
Two better-ranked stocks in the industry are Griffon Corporation GFF and Hitachi Ltd. HTHIY. While Hitachi currently sports a Zacks Rank #1 (Strong Buy), Griffon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for Hitachi have improved for the current year, while have been unchanged for Griffon.
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