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Will Danaher (DHR) Gain from Restructuring Initiatives?
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It has been a little less than six months, since Danaher Corporation (DHR - Free Report) completed the Fortive Corporation (FTV - Free Report) spin-off and split itself into two independent, publicly traded companies. Post this separation, it has been busy reshuffling its business to focus on more profitable business, including life sciences, filtration, and water quality and product identification businesses.
Despite the best efforts, Danaher’s shares have plunged 23.3% in the past six months, in stark contrast to the Zacks categorized Diversified Operations industry average positive return of 2.1%.
It would seem that investors are apprehensive about Danaher’s prospects and its ability to execute its restructuring plans effectively. Here are a few underlying strengths to be considered before dismissing the stock.
Factors Stoking Growth
Danaher’s key strengths include its efficient management team, impressive customer base and wide geographic presence. The company’s operating culture – Danaher Business Systems (DBS) – is a key differentiator that provides a set of philosophies, systematic processes and the toolsets to drive continuous improvement. DBS has helped Danaher to generate historically superior sales growth, operating margin, cash flow generation and return on equity compared with most other diversified industrial investments.
Post the spin-off, Danaher has reorganized its business into four segments, namely Life Sciences & Diagnostics, Dental, Environmental and Applied Solutions. These remaining operational units retain businesses with a recurring revenue structure and major exposure in healthcare and environmental business verticals. The strategic spin-off also represents Danaher’s effort to shift to less volatile end-markets and building the consumables base, especially in the dental, life sciences and water businesses.
Going forward, the company’s Life Sciences, Diagnostics and Dental segments are likely to act as sturdy growth drivers. Danaher has successfully repositioned itself as a healthcare company, fortifying its presence in the healthcare and dental markets, which are anticipated to benefit from rise in the aging population and increased spending on healthcare and fitness. Additionally, lucrative prospects in the pharma and clinical end-markets bode well for the segment. We believe that BioProduction is still in the nascent stage and holds tremendous potential for Danaher.
This apart, the company’s recent acquisitions namely Cepheid and Phenomenex, are expected to boost its already thriving Diagnostics and Life Sciences business, respectively. Cepheid’s comprehensive installed base, test menu and pioneering product portfolio will strengthen this Zacks Rank #2 (Buy) company’s presence in the high-growth molecular diagnostics business. Phenomenex enhances Danaher’s Life Sciences portfolio.
The Dampeners
Ongoing economic weakness across the globe, especially uncertainty in Latin American and some European regions like Russia and the Middle East, may adversely affect Danaher’s business. Moreover, softness in industrial markets in China, North America, Latin America and the Middle East has been severely hampering the company’s business, of late. Also, persistent weakness in the company’s packaging and color solutions in key geographies has been hurting its Industrial Technologies business for the past couple of quarters.
Further, sluggish academic business in key end markets, including Europe, is also adding to the company’s woes. Of late, Danaher has also been facing the heat of channel de-stocking in the U.S. and the Middle East, which may continue in the future as well, jeopardizing the company’s dental business in the near term. Moreover, the company is highly vulnerable to adverse foreign currency translations, as a significant portion of its revenues is derived from regions outside the U.S.
Trending Estimates
Danaher has a striking earnings surprise history, beating estimates thrice in the trailing four quarters. In addition, the company’s earnings have been witnessing solid activity on the earnings estimate revision front. Analysts have become increasingly bullish on the stock, as the Zacks Consensus Estimate for fiscal 2016 earnings has sharply trended up in the past couple of months, from $3.55 to $3.59, driven by five upward estimate revisions versus no lower.
Other Stocks to Consider
Some other favorably placed stocks in the industry are Leucadia National Corp. and Hudson Technologies Inc. (HDSN - Free Report) .
Leucadia National Corporation delivered an average positive earnings surprise of 179.0% over the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hudson Technologies Inc. currently carries the same Zacks Rank as Danaher. The company has delivered an average positive earnings surprise of 20.7% for the trailing four quarters.
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Will Danaher (DHR) Gain from Restructuring Initiatives?
It has been a little less than six months, since Danaher Corporation (DHR - Free Report) completed the Fortive Corporation (FTV - Free Report) spin-off and split itself into two independent, publicly traded companies. Post this separation, it has been busy reshuffling its business to focus on more profitable business, including life sciences, filtration, and water quality and product identification businesses.
Despite the best efforts, Danaher’s shares have plunged 23.3% in the past six months, in stark contrast to the Zacks categorized Diversified Operations industry average positive return of 2.1%.
It would seem that investors are apprehensive about Danaher’s prospects and its ability to execute its restructuring plans effectively. Here are a few underlying strengths to be considered before dismissing the stock.
Factors Stoking Growth
Danaher’s key strengths include its efficient management team, impressive customer base and wide geographic presence. The company’s operating culture – Danaher Business Systems (DBS) – is a key differentiator that provides a set of philosophies, systematic processes and the toolsets to drive continuous improvement. DBS has helped Danaher to generate historically superior sales growth, operating margin, cash flow generation and return on equity compared with most other diversified industrial investments.
Post the spin-off, Danaher has reorganized its business into four segments, namely Life Sciences & Diagnostics, Dental, Environmental and Applied Solutions. These remaining operational units retain businesses with a recurring revenue structure and major exposure in healthcare and environmental business verticals. The strategic spin-off also represents Danaher’s effort to shift to less volatile end-markets and building the consumables base, especially in the dental, life sciences and water businesses.
Going forward, the company’s Life Sciences, Diagnostics and Dental segments are likely to act as sturdy growth drivers. Danaher has successfully repositioned itself as a healthcare company, fortifying its presence in the healthcare and dental markets, which are anticipated to benefit from rise in the aging population and increased spending on healthcare and fitness. Additionally, lucrative prospects in the pharma and clinical end-markets bode well for the segment. We believe that BioProduction is still in the nascent stage and holds tremendous potential for Danaher.
This apart, the company’s recent acquisitions namely Cepheid and Phenomenex, are expected to boost its already thriving Diagnostics and Life Sciences business, respectively. Cepheid’s comprehensive installed base, test menu and pioneering product portfolio will strengthen this Zacks Rank #2 (Buy) company’s presence in the high-growth molecular diagnostics business. Phenomenex enhances Danaher’s Life Sciences portfolio.
The Dampeners
Ongoing economic weakness across the globe, especially uncertainty in Latin American and some European regions like Russia and the Middle East, may adversely affect Danaher’s business. Moreover, softness in industrial markets in China, North America, Latin America and the Middle East has been severely hampering the company’s business, of late. Also, persistent weakness in the company’s packaging and color solutions in key geographies has been hurting its Industrial Technologies business for the past couple of quarters.
Further, sluggish academic business in key end markets, including Europe, is also adding to the company’s woes. Of late, Danaher has also been facing the heat of channel de-stocking in the U.S. and the Middle East, which may continue in the future as well, jeopardizing the company’s dental business in the near term. Moreover, the company is highly vulnerable to adverse foreign currency translations, as a significant portion of its revenues is derived from regions outside the U.S.
Trending Estimates
Danaher has a striking earnings surprise history, beating estimates thrice in the trailing four quarters. In addition, the company’s earnings have been witnessing solid activity on the earnings estimate revision front. Analysts have become increasingly bullish on the stock, as the Zacks Consensus Estimate for fiscal 2016 earnings has sharply trended up in the past couple of months, from $3.55 to $3.59, driven by five upward estimate revisions versus no lower.
Other Stocks to Consider
Some other favorably placed stocks in the industry are Leucadia National Corp. and Hudson Technologies Inc. (HDSN - Free Report) .
Leucadia National Corporation delivered an average positive earnings surprise of 179.0% over the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hudson Technologies Inc. currently carries the same Zacks Rank as Danaher. The company has delivered an average positive earnings surprise of 20.7% for the trailing four quarters.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>