Opinions
Jim Cramer - Mad Money
Danaher Corp.
DHR-N
BUY
Feb 05, 2024
Stock price when the opinion was issued
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DHR is expensive at 28x forward earnings and it has not been able to fully recover to its all-time highs in 2021 when it traded above $330. DHR has been trading quite choppily since. It is flat year-to-date but up 11% over the last year. We do think that DHR could be a good long-term healthcare play and some of the current risks/fears due to the new US administration may be slightly overstated for healthcare stocks.
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In recent years, DHR has been in the process of transforming itself from an industrial conglomerate into a pure life science and biotech player with a high degree of recurring revenues by divesting legacy industry assets. The company now possesses a solid profile of highly recurring revenue and strong margins, basically a “software-like” business model.
However, weak organic growth has caused the company’s shares to trade largely sideways in recent years. DHR also repurchased shares aggressively in the recent quarter, which the company did not implement for a long time, indicating that management believes shares are undervalued. That being said, DHR is trading at 28.4x Forward P/E with low single-digit revenue growth, which is certainly not that attractive. However, this is not the company’s issue but rather an industry-wide challenge, as similar headwinds also exist with other players like TMO.
Consensus estimates expect DHR to grow its topline by 7% on average over the next few years. We think now could be a good time to average into the position, but maybe not be too aggressively. We would be comfortable starting a position but only adding more when revenue returns to a solid growth trajectory.
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He bought this in early 2022, though it was mired in an inventory glut. He's stuck with it ebcause he expected it to bounce back. It still has a high PE though. Is down 19% from its August high, but is now a good entry point. An analyst just upgraded it. He expects the healthcare sector to come back next year.
Diversified diagnostics and bio-processing franchise. Good capital allocators. On the upswing in terms of cyclicality. Under-deployed balance sheet can be utilized accretively. Until recently, valuation was coming down. Defensive healthcare, a more resilient vertical than industrials. More complex treatments of the future benefit a name like this (and TMO). Yield is 0.64%.
(Analysts’ price target is $245.38)Since Covid hit, everything's slowed down. More pressure from the government. Long-term view is that its equipment will still need to be used to develop new drugs. Products needed by universities, governments, hospitals, biotech. Just have to wait for demand to pick up. Lots of opportunity for sales growth, just not at the same pace as before Covid. A buying opportunity.
When he recommended this last summer, he was expecting the glut in bioprocessing equipment to finally end. They reported good results last October, but lowered guidance. In late October, the entire sector seemed to find its footing when interest rates peaked, but was it out of the woods? Last week, DHR reported healthy revenue and earnings beats, but issued very disappointing guidance with organic revenue to be down YOY. Shares slid 5% in pre-markets. Turns out that management was merely being conservative. During the conference call, DHR said that the world ex-China should return to grow later this year as the inventory gut ends. So, but it now.