Danaher shares rose greater than 6% on Tuesday after the life sciences company delivered a robust quarter and reiterated its guidance – an indication that the long-time club stock is back on the right track. Revenue for the period ended June 28 fell 3.5% organically yr over yr to $5.74 billion, based on LSEG, beating analyst estimates of $5.59 billion. Total revenue on a reported basis declined nearly 2.9% yr over yr. Adjusted earnings per share (EPS) declined lower than 1% yr over yr to $1.72, beating the consensus estimate of $1.57 per share. Danaher Why We Own It: Danaher is a top-tier life sciences and diagnostics company with a management team that has consistently demonstrated its ability to search out latest paths for growth. We expect a turnaround in bioprocessing orders this yr as biotech financing restarts and bigger customers reduce efforts to clear excess Covid-era inventory. Competitors: Sartorius and Thermo Fisher Scientific Portfolio Weight: 4.6% Last Purchase: July 2, 2024 Start: January 3, 2022 Bottom Line This quarter was exactly what we would have liked to see from Danaher. In addition to strong performance at the company level – with profit margins and money flow generation complementing strength in sales and earnings – bioprocessing demand is improving as inventory and financing ultimately market proceed to normalize. This improvement within the bioprocessing end market is incredibly vital because it represented an enormous overhang for Danaher stock and the life sciences space usually. Bioprocessing is a broad term that refers back to the research, development, manufacturing, and commercialization of products made out of living cells or their components, including food, fuels, biopharmaceuticals, etc. We were concerned in regards to the bioprocessing market after competitor Sartorius lowered its forecast last week, so we were pleased to see that while there continues to be some weakness, the trend is improving. In the conference call with investors following the earnings release, management said that giant U.S. and European customers have cleared most of their excess inventory and are returning to normal ordering patterns. The book-to-bill ratio in biotech stays slightly below 1, in comparison with 0.95 last quarter. As a reminder, book-to-bill measures the quantity of business booked in comparison with the quantity billed; a ratio above 1 is favorable since it means demand is exceeding supply and resulting in a rise within the backlog. So there continues to be room for improvement, but Danaher is on the suitable track. The Chinese market stays weak. But the corporate said it’s seeing growing demand from customers and expects growth next yr because of government incentives. Management doesn’t expect real financial improvement until 2025. The management team has handled the bioprocessing slowdown higher than others and kept expectations in check – a giant reason we have held onto the stock through some tough quarters. The strong results and reiterated guidance were also backed up by management walking the talk in a way we’ve not seen shortly. In a transparent vote of confidence, management repurchased about 17.4 million shares in the course of the quarter and one other about 1.9 million in July, bringing the full to over 19 million shares. That’s especially notable since it’s the team’s first share repurchase in a minimum of 10 years. When asked in regards to the buyback, CEO Rainer Blair said management continues to be leaning more toward mergers and acquisitions. However, from a yield perspective, Danaher stock offers higher value than lots of the targets currently possible. The board also authorized the repurchase of as much as a further 20 million shares. Based on these strong results and the improving bioprocess market, we’re raising our price goal to $295 from $280 and reiterating our rating of 1. Forecast For the present quarter, the third of fiscal 2024, Danaher expects revenue to say no within the low single digits yr over yr on a core basis. That’s slightly below expectations for a rise of lower than 1%, based on FactSet. (Core basis means revenue comes from the corporate’s important business, excluding one-time income and expenses.) All three businesses are expected to post low single digit revenue declines. Management is forecasting an operating profit margin of about 26%, based on FactSet, in comparison with the Street consensus of 26.9%. On a full-year basis, management’s forecast remained unchanged. The team expects total revenue to say no within the low single digits, in comparison with expectations for a 1.5% decline. This view includes an expectation that biotech revenue will decline within the low to mid single digits, life sciences revenue will increase within the low single digits, and diagnostics revenue will increase within the low single digits – all unchanged from the previously provided outlook. Management reiterated its expectation of full-year adjusted operating margin of roughly 29%, in keeping with analyst estimates. Quarterly Results As seen within the Product Segments section below, better-than-expected ends in biotech and diagnostics greater than offset slight weakness in life sciences. In addition, organic growth, profitability and money flow all exceeded expectations. Biotech revenue fell 7% on a core basis to $1.71 billion. Within the segment, bioprocessing declines slowed to high single digits, higher on a year-over-year percentage point basis than the high double digit decline in the primary quarter. Compared to the previous quarter, bioprocessing orders grew high single digits as conditions within the U.S. and Europe proceed to enhance. Although bioprocessing demand in China was stable in comparison with the previous quarter, Blair said it stays “soft as customers continue to manage their liquidity.” We proceed to see a robust runway for the segment because the recovery continues, with Blair reiterating his bullish view on the biotech opportunity. “The biologics market remains very healthy, as evidenced by the increasing number of treatments both in development and in production.” Notably, the number of recent FDA approvals for biologic and genomic drugs nearly doubled in the primary half of this yr in comparison with the primary half of 2023, and full-year 2024 is on the right track to set one other record. Blair added that underlying demand for biologics stays on the right track to return to high single-digit growth or more in full-year 2024. “Given the significant and sustained increase in approvals and production volumes, we expect the growth rate in bioprocessing to remain very robust for many years to come,” he said. Life sciences revenues declined 5.5% to $1.77 billion on a core basis. Management said core revenues declined within the instrument business, global pharmaceutical and biotech demand remained weak and academic markets declined sequentially. However, applied markets saw some improvement. In China, the team said, there was some improvement because of government stimulus measures. However, don’t expect this to translate into orders before 2025 as these programs are within the early stages of implementation. In the meantime, many purchasers are delaying their purchasing decisions as they wait for financing, the corporate said. Diagnostics revenue rose 3% on a core basis to $2.26 billion. Clinical diagnostics revenue rose mid-single digits. Management said the segment was led by high-single-digit growth on the Radiometer unit. Leica Biosystems’ revenue growth rate was mid-single digits, while Beckman Coulter Diagnostics grew low-single digits, showing balanced strength in developed and high-growth markets. At molecular diagnostics subsidiary Cepheid, the team reported market share gains in molecular testing. Respiratory revenue of $300 million exceeded management’s expectations by $100 million, driven by each higher volumes and a positive mixture of 4-in-1 tests for Covid-19, Flu A, Flu B and RSV. Free money flow was higher than expected at $1.13 billion, but was down about 14% from the identical period last yr. The company also achieved a free money flow to net income ratio of 125%. Year-to-date, that ratio is 129%. That means its earnings are fully covered by money (after which some), and are due to this fact of upper quality than earnings without an equal or greater amount of money. (Jim Cramer’s Charitable Trust is long DHR. A full list of stocks could be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. After sending a trade alert, Jim waits 45 minutes before buying or selling a stock from his Charitable Trust’s portfolio. If Jim has discussed a stock on TV, he’ll wait 72 hours after the trade alert is issued before executing the trade. THE INVESTING CLUB INFORMATION DESCRIBED ABOVE IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY AND OUR DISCLAIMER. NO FIDUCIARY OBLIGATION OR DUTY EXISTS OR IS CREATED BY RECEIVING INFORMATION RELATED TO THE INVESTING CLUB. NO PARTICULAR RESULT OR PROFIT IS GUARANTEED.
In this photo illustration, the Danaher Corporation logo is seen on a tablet.
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Shares of Danaher rose greater than 6% on Tuesday after the life sciences company delivered a robust quarter and reiterated its guidance, an indication that the long-standing club stock is back on the right track.
