On July 21, 2023, Danaher Corp (DHR, Financial) witnessed a 4.71% increase in its stock price, reaching $255.88. With a market cap of $188.8 billion and an impressive earnings per share of $9.28, the company seems to be in a robust financial position. Interestingly, the GuruFocus Value (GF Value) of Danaher (DHR) stands at $299.16, indicating that the stock might be modestly undervalued.
Founded in 1984, Danaher transformed from a real estate organization into an industrial-focused manufacturing company. Today, it primarily manufactures scientific instruments and consumables across three segments: life sciences, diagnostics, and environmental and applied solutions. As of late 2022, Danaher announced plans to divest its environmental and applied solutions group in 2023, focusing solely on life sciences and diagnostics.
Understanding the GF Value of Danaher
The GF Value is a unique measure of a stock's intrinsic worth, calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. If a stock's price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. In the case of Danaher, the stock appears to be modestly undervalued, suggesting that its long-term return is likely to be higher than its business growth.
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Financial Strength of Danaher
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company’s financial strength before deciding whether to buy shares. Danaher has a cash-to-debt ratio of 0.37, which ranks worse than 72.92% of companies in the Medical Diagnostics & Research industry. Based on this, GuruFocus ranks Danaher’s financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability of Danaher
Investing in profitable companies poses less risk, especially those demonstrating consistent profitability over the long term. Danaher has been profitable 10 over the past 10 years. With a revenue of $31 billion and earnings per share of $9.28 in the past twelve months, its operating margin is 26.85%, ranking better than 93.39% of companies in the Medical Diagnostics & Research industry. GuruFocus ranks the profitability of Danaher at 8 out of 10, indicating strong profitability.
Growth of Danaher
Growth is a crucial factor in the valuation of a company. Danaher's 3-year average annual revenue growth is 20%, ranking better than 67.82% of companies in the Medical Diagnostics & Research industry. Its 3-year average EBITDA growth rate is 31.9%, ranking better than 72.92% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can determine its profitability. Danaher’s ROIC is 10.1, and its WACC is 7.48 for the past 12 months. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders.
Conclusion
Overall, Danaher (DHR, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 72.92% of companies in the Medical Diagnostics & Research industry. To learn more about Danaher stock, you can check out its 30-Year Financials here.
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