Company Reports

Narrow-moat Danaher started strong in 2024 primarily on the strength of its Cepheid diagnostic business, although positive signs are coming out of its other segments, too. We are raising our fair value estimate for Danaher 5% to $255 per share from $243 to reflect this strong start and cash flows generated since our last valuation update.

Through its Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields and also divesting assets that are no longer seen as core, such as the recently divested Veralto operations. After acquisitions, Danaher aims to accelerate core growth at acquired companies by making research and development and marketing-related investments. It also implements lean manufacturing principles and administrative cost controls to boost operating margins. Overall, we appreciate Danaher's strategic moves, which have pushed it into attractive end markets with strong growth prospects and sticky, recurring revenue streams.

As previewed at a recent investor conference, narrow-moat Danaher turned in strong fourth-quarter 2023 results on the strength of its Cepheid diagnostic operations. However, its forecast for 2024 looks weaker than we anticipated with continued softness expected especially in early 2024 when comparable periods look tough. While disappointing, we are not changing our long-term expectations or $243 fair value estimate materially for Danaher.

Narrow-moat Danaher turned in solid third-quarter results, as its bioprocessing business appears to be bottoming near management expectations. At first blush, we do not anticipate changing near-term expectations or our $243 fair value estimate materially, which incorporates the Veralto spinoff. Danaher's shares remain moderately undervalued.

Through its Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields and divest assets that are no longer seen as core, such as the recently divested Veralto operations. After acquisitions, Danaher aims to accelerate core growth at acquired companies by making research and development and marketing-related investments. It also implements lean manufacturing principles and administrative cost controls to boost operating margins. Overall, we appreciate Danaher's strategic moves, which have pushed it into attractive end markets with strong growth prospects and sticky, recurring revenue streams.

Narrow-moat Danaher performed a tax-free spinoff of its environmental and applied solutions group, Veralto, to shareholders. We have reduced our fair value estimate to $243 per share from $265 to reflect this distribution of assets. Danaher's shares are trading slightly below fair value, in our opinion.

Narrow-moat Danaher turned in weak second-quarter results relative to a tough comparable period a year ago, and management reduced its 2023 outlook again on bioprocessing unit weakness. However, mild changes to our near-term assumptions do not materially affect our $265 fair value estimate, and Danaher's shares continue to look reasonably valued to us.

Life science toolmakers that enable drug production operate attractive businesses for two major reasons that investors often find compelling. First, regulation of the drug manufacturing process creates highly durable switching costs for end users and long potential revenue streams for life science toolmakers. Second, life science firms often benefit from broad exposure to biopharmaceutical growth without taking on much product-specific risk.

Through its Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields and divest assets that are no longer seen as core. After acquisitions, Danaher aims to accelerate core growth at acquired companies by making R&D and marketing-related investments. It also implements lean manufacturing principles and administrative cost controls to boost operating margins. Overall, we appreciate Danaher's strategic moves, which have pushed it into attractive end markets with strong growth prospects and sticky, recurring revenue streams. For example, recurring revenue could reach about 80% of sales after the pending environmental and applied solutions (EAS) group divestiture in late 2023.

Narrow-moat Danaher turned in weak first-quarter results relative to a tough comparable period a year ago when the omicron variant was surging, and management reduced its 2023 outlook moderately. However, we think our 2023 cash flow assumptions remain appropriate, and we do not anticipate changing our $242 fair value estimate materially based on this announcement.

Through the Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields and divest assets that are no longer seen as core. After acquisitions, Danaher aims to accelerate core growth at acquired companies by making R&D and marketing-related investments. It also implements Lean manufacturing principles and administrative cost controls to boost operating margins. Overall, we appreciate Danaher's strategic moves, which have pushed it into attractive end markets with strong growth prospects and sticky, recurring revenue streams. For example, recurring revenue could reach about 80% of sales after the pending environmental and applied solutions (EAS) group divestiture in late 2023.

Narrow-moat Danaher turned in stronger-than-anticipated operating results for the fourth quarter that pushed full-year 2022 results above expectations. However, COVID-19-related tailwinds look likely to turn into headwinds in 2023, which could negatively affect the top and bottom lines. Considering these roughly offsetting factors in our model, we do not anticipate changing our $242 fair value estimate materially.

After announcing the planned divestiture of its environmental and applied solutions, or EAS, group in September, we reexamined our views on narrow-moat-rated Danaher, resulting in changes to our capital allocation rating and our fair value estimate. We have raised our capital allocation rating on Danaher to Exemplary, from Standard previously, as we have gained a greater appreciation for the company's investment strategy and execution. The company has created substantial value for shareholders over a very long time period, and further value creation appears possible due to the firm's unique culture and business processes. While our moat rating has not changed, we expect the firm's switching costs to become slightly more durable after divestiture and recognize that in our new fair value estimate ($242 per share, up from $215 previously) by increasing our long-term growth and profitability assumptions that estimate value creation beyond our explicit five-year forecast period.

Through the Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields and divest assets that are no longer seen as core. After acquisitions, Danaher aims to accelerate core growth at acquired companies by making R&D and marketing-related investments. It also implements Lean manufacturing principles and administrative cost controls to boost operating margins. Overall, we appreciate Danaher's strategic moves, which have pushed it into attractive end markets with strong growth prospects and sticky, recurring revenue streams. For example, recurring revenue could reach about 80% of sales after the pending environmental and applied solutions (EAS) group divestiture in late 2023.

Narrow-moat Danaher turned in stronger-than-anticipated operating results for the third quarter. However, COVID-19-related tailwinds may eventually turn into into headwinds, and the company's outlook for the rest of the year looks roughly in line with our expectations. So we do not anticipate changing our $215 fair value estimate based on this news, and the shares still appear moderately overvalued to us when considering Danaher's longer-term prospects.

In advance of its investor day on Thursday, Danaher announced the planned divestiture of its environmental and applied solutions group in late 2023 and a slight increase in its 2022 outlook, which appear to be pushing up shares. However, our fair value estimate may not change materially unless Danaher can realize more value for the asset at the time of the spinoff than we recognize in our combined model. Positively though, we appreciate this divestiture plan strategically, as it may slightly increase the durability of Danaher's switching cost moat source by focusing exclusively on life sciences and diagnostics. While we suspect our narrow moat and stable moat trend ratings will not change materially on this business mix shift, our capital allocation rating (currently on the strong end of Standard) may rise to Exemplary based on our increasing appreciation for Danaher's investment strategy and anticipated execution after this divestiture.

Narrow-moat Danaher turned in stronger-than-anticipated operating results for the second quarter, which appears to be positively influencing shares. Considering cash flows generated since our last valuation update in January and these strong trends, we have increased our fair value estimate to $215 per share from $200 previously. However, shares still appear rich to us when considering Danaher's longer-term prospects.

Through the Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields. After acquisitions, Danaher aims to accelerate core growth at acquired companies by making R&D and marketing-related investments. It also implements Lean manufacturing principles and administrative cost controls to boost operating margins. Overall, we appreciate Danaher's strategic moves, which have pushed it into attractive end markets with strong growth prospects and sticky, recurring revenue streams. For example, recurring revenue stood at roughly three quarters of Danaher's sales in 2021.

Narrow-moat Danaher turned in strong operating results for the first quarter, which included the omicron variant surge that helped the firm exceed our expectations and FactSet consensus. However, Danaher maintained its guidance for the year, which suggests growth will decelerate significantly, and we are maintaining our $200 fair value estimate. Shares still appear rich to us when considering the potential for a profit growth reset, as the COVID-19 pandemic likely turns endemic in the near future.

Narrow-moat Danaher turned in strong top- and bottom-line results for the fourth quarter, helped by the omicron variant surge, that helped the firm exceed our expectations and FactSet consensus for the quarter and year. We are raising our fair value estimate 11% to $200 per share from $180 previously to reflect recent results (5%), slightly higher near-term assumptions (4%), and a lower U.S. corporate tax rate (2%). Shares still trade well above fair value, though, when considering the potential for a reset in the company's profits, as the pandemic likely turns into an endemic situation in the next couple years.