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We’re cutting our price target on Danaher as frustration mounts after a messy quarter
Danaher shares are under pressure Wednesday as the Club holding’s fourth-quarter earnings results came in mixed and guidance disappointed. The company long known for its operational excellence is further testing our patience. Revenue for the three months ended Dec. 31 advanced 2% year over year on a reported basis, to $6.54 billion, outpacing the LSEG consensus estimate of $6.43 billion. On an organic basis, sales were up 1% versus the year-ago period. Adjusted earnings per share (EPS) increased 2.4% annually, to $2.14, but it came up short versus the $2.16 consensus estimate, LSEG data showed. It’s the first time Danaher has missed the quarterly EPS consensus since at least the fourth quarter of 2019, according to FactSet. Shares tumbled more than 8%, to roughly $226 apiece, in early afternoon trading Wednesday. The losses have dragged the stock into negative territory year to date. Danaher entered the session up roughly 8% so far in 2025, part of a strong start to the year for the health-care sector more broadly. DHR 1Y mountain Danaher’s stock performance over the past 12 months. Bottom line Yet another disappointing release from Danaher — extending a streak of inconsistent results over the past two years — leaves us with no choice but to reconsider this position. On Tuesday, we did trim 50 shares and downgraded the name to a hold-equivalent 2 rating out of discipline. It came as the stock got a boost on the back of results from European peer Sartorius. Of course, in hindsight, we should have sold more. That’s not easy to admit because of how highly we’ve thought about this company and its management in the past. And it’s not just us: Danaher’s long-standing corporate strategy to fuel growth and make shareholders money —the aptly named Danaher Business System — has been the subject of Harvard Business School case studies . Danaher provides products and services to multiple corners of the health-care industry, including those used in drug discovery and production, as well as diagnostic tools found in hospitals and doctors’ offices. Its customers also include academic research labs and pharmaceutical and biotech companies. We did not arrive at our dissatisfaction in haste. During the January Monthly Meeting, we highlighted our disappointment in the lack of growth out of China. While the sluggish Chinese economy cannot be blamed on management, the failure to manage investor expectations can. Compounding our existing frustration, management sounded so upbeat Wednesday despite what we see in the actual results and formal guidance. The team’s credibility is back in doubt. For now, we’re lowering our price target on the stock to $270 a share from $305, reflecting the lower-than-expected growth now forecast for 2025. Indeed, the real driver of disappointment Wednesday is Danaher’s outlook for the current quarter and full fiscal year. Management had previewed these decidedly mixed fourth-quarter results earlier this month, at the influential JPMorgan Healthcare Conference, which added to the anticipation of Wednesday’s guide. What we got wasn’t good enough, with expected core revenue growth for both periods below Wall Street’s consensus. Danaher Why we own it: Danaher is a best-in-class life sciences and diagnostics company tied to secular growth trends like an aging global population, a shift in medicine to biologics, and the rise of monoclonal antibodies, among other themes. In recent years, Danaher has reshaped its portfolio toward faster-growing, higher-margin opportunities within health care. But it has been a bumpy ride, with Danaher struggling to return to sustainable growth due to customers working off excess Covid-era inventory. Our investment acknowledges continued near-term headwinds with longer term potential. Competitors : Sartorius and Thermo Fisher Scientific Weight in portfolio : 3.27% Most recent buy : Nov. 18, 2024 Initiated : Jan. 3, 2022 Among the few bright spots in the fourth quarter: Free cash flow came in at $1.5 billion, representing nearly 30% growth versus the year-ago period. The company also achieved a free cash flow to net income conversion ratio of 138%. For the full year, that ratio came in at 136%. Anything above 100% means that a company’s earnings are fully backed by cash, a sign of high-quality profits. Danaher cleared that bar — and then some. Additionally, during the fourth quarter and into January, Danaher repurchased about 8 million shares, totaling about $1.9 billion. Quarterly commentary Danaher’s sales in developed markets came in roughly flat in the quarter, as a low-single-digit decline in North America was offset by a low-single-digit increase in Western Europe. High-growth markets were up low single digits as momentum outside of China more than offset a mid-single-digit decline in China. Biotechnology core revenue was up 8% year over year, with orders increasing high-single-digit percentage points on a sequential basis. In general, core revenue strips out the impact of foreign-exchange fluctuations, as well as as mergers and acquisitions. It helps smooth out the year-over-year comparisons and better capture how the segment is performing. The biotechnology segment’s book-to-bill was about 1. Anything above 1 indicates more orders were received than filled in a given period. The segment’s adjusted operating profit margin was 38.6%, up 200 basis points year over year. A basis point is equal to 0.01%. Bioprocessing sales were up high-single-digit percentage points, with the gradual recovery seen throughout the year continuing into the fourth quarter. In the key China market, management said “activity levels were relatively stable,” but overall they remain weak due to a difficult funding environment. Life sciences core revenue was up 1% year over year. The segment’s adjusted operating profit margin expanded 320 basis points year over year, to 25.8% Instruments sales increased slightly, outpacing management’s expectations in the U.S. and Europe. In China, CEO Rainer Blair said Danaher observed “modest demand improvements” during the quarter. “While we did see a modest benefit from the ongoing stimulus program, market conditions continue to be challenging as customers remain cautious with their investments,” he said. Diagnostics core revenue declined 2% year over year. The segment’s adjusted operating profit margin contracted 170 basis points versus the year-ago period, to 29.2% Clinical diagnostics businesses realized combined core revenue growth in the low-single-digit range, led by Leica Biosystems, where sales were up nearly 10% year over year. Cepheid respiratory sales came in $550 million, well ahead of the roughly $350 million expected by management, due to both increased volumes and a favorable sales mix of Danaher’s four-in-one test for Covid-19, Flu A, Flu B, and respiratory syncytial virus, or RSV. Guidance For the current quarter, Danaher expects core revenue to decline in the low single digits versus last year, missing expectations of a 2.9% increase, according to estimates compiled by FactSet. Danaher’s adjusted operating profit margin is expected to be roughly 26.5%, below the 30% the Street was looking for. Biotechnology core revenue is expected to increase 6% to 7% Meanwhile, core revenue for both the life sciences and diagnostics segments is expected to be down mid-single-digit percentage points. For the full year, management forecasts 3% core revenue growth, also a miss versus expectations for a roughly 5% increase, according to FactSet. The adjusted operating profit margin is expected to be approximately 28.5%, below the Wall Street consensus of 29.7%. Biotechnology core revenue growth is expected to be between 6% and 7%, a miss versus analyst expectations for an 8% year over year increase, per FactSet. Life sciences core revenue growth is projected to be up low-single-digit percentage points. That compares to the Wall Street consensus of 4% annual growth. Diagnostics core revenue growth is expected to be in the range of flat to up low-single-digit percentage points. That compares to a mid-single-digit annual growth estimate. (Jim Cramer’s Charitable Trust is long DHR. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A worker uses a machine made by Pall Corp. during a demonstration of the clarification stage of the production of influenza vaccine during a tour at a Sanofi Pasteur vaccine production facility in Swiftwater, Pennsylvania.
Stephen Hilger | Bloomberg | Getty Images
Danaher shares are under pressure Wednesday as the Club holding’s fourth-quarter earnings results came in mixed and guidance disappointed. The company long known for its operational excellence is further testing our patience.
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