Danaher: excellent total return and increased cash flow (NYSE: DHR)



Danaher Company (NYSE: DHR) designs, manufactures and markets professional, medical, industrial and commercial products and services is a purchase for the total return investor. Danaher, a global company with operations in 60 countries, is enjoying steady growth and abundant cash flow, which it uses to increase the dividend every year and buy bolted companies. Danaher owns 1.7% of The Good Business portfolio; my IRA portfolio of good companies is balanced across all investment styles.

As I have already said in previous articles.

I use a set of guidelines that I’ve codified over the past few years to review companies in the Good Business Portfolio (my portfolio) and other companies I review. For a full set of guidelines, please see my article “The Good Business Portfolio: Guidelines Update, March 2020”. These guidelines provide a balanced portfolio of income, defensive, total return and growth companies that will hopefully keep me ahead of the Dow Jones average.

The fundamentals

Danaher is not an income investment, but makes up for poor performance with strong growth as the global medical products and services business expands. Danaher has healthy cash flow of $8.4 billion a year, and the company uses some of that cash to grow its business by buying complementary companies and increasing dividends each year, increasing shareholder value. . A quote from CEO Rainer Blair’s Q2 earnings call sums up the strong fundamentals of the last quarter and increased growth from corporate buyouts.

We had a great term. In fact, our strong second quarter results capped off an excellent first half. The overall strength of the entire portfolio generated revenue, earnings and cash flow above expectations. And we’ve been particularly pleased with the performance of our core business, which is in the high single digits, and believe we’re gaining market share in many of our businesses. Our employees have done an incredible job leveraging Danaher’s business system to help ease supply chain constraints, manage inflationary pressures, and improve our competitive positioning through impactful new innovations. Our second quarter results also highlight the strength and resilience of the businesses that make up Danaher today. Our portfolio is made up of leading franchises positioned in attractive end markets with strong, centuries-old growth drivers, all united by a common set of sustainable business models. Indeed, almost 75% of our revenues today are recurring, the majority of which are consumables specified in highly regulated manufacturing processes or specific to the equipment we supply. In addition, our strong balance sheet and free cash flow generation positions us well to further enhance our portfolio going forward. We believe this powerful combination of our talented team and the strength of our portfolio, all powered by the Danaher Business System, differentiates Danaher and strengthens our long-term, sustainable competitive advantage. So with that, let’s dive into our second quarter results in a bit more detail. Sales were $7.8 billion and we delivered 9.5% growth in core revenue, including 8% growth in our core business with strong contributions from our four operating platforms . COVID-19 testing contributed an additional 150 basis points to core revenue growth in the quarter. Geographically, core revenue in developed markets grew double-digit with expanded strengths in North America and Western Europe.

This shows the sentiments of the CEO and the fundamentals for the continued growth of Danaher’s business and return to shareholders. Danaher has good long-term growth and will continue with the return of the global workforce after the control of the COVID virus, which will grow global economies. S&P CFRA recently lowered its one-year Danaher price target to $299 from $310, giving you a possible 7% one-year gain and making Danaher a good long-term buy at the moment. The projected one-year PE is high at 28, showing that Danaher is a bit overvalued now compared to the projected 22% CAGR growth, but good growing companies don’t come cheap.

One of the minor reasons to own Danaher is to have stable quarterly income with good growth as COVID virus uses more DHR services and supplies and workers return to work. Danaher’s revenues will grow in the rest of the world in the coming years as they buy more complementary businesses. Danaher has a below-average dividend yield of 0.4% and has seen increases for eleven years, making Danaher a fair choice for the growing dividend investor who wants consistently growing income. The dividend was last increased in February 2022, an increase from $0.21/quarter to $0.25/quarter or a 19% increase. The five-year average payout ratio is low at 15%, allowing cash to be retained to grow the business by buying complementary companies and increasing the dividend which increases earnings and share price , bringing value to the shareholder.

The method I use to compare companies is to first look at total return relative to the market. If a company can’t beat the market, why do you want to invest in that company? Danaher’s excellent total return of 335.88% versus the Dow Jones base of 87.82% over my 80 month test period makes Danaher a fantastic investment for the total return investor. Looking back five years, $10,000 invested five years ago would now be worth over $37,100 today. This gain makes Danaher an excellent investment for the retrospective total return investor, who has future growth with increased income as the COVID-19 virus is controlled worldwide. Overall, Danaher is a good company with an S&P CFRA 3-year CAGR of 22% projected growth as the U.S. and foreign economies grow in the future, with growing demand for products and services from Danaher. Danaher is currently in a good position as demand for the company’s products continues to grow worldwide. Year-over-year revenue for the last quarter increased 8% and is expected to continue for at least a year as the rest of the world catches up on vaccinating its populations.

Danaher is a large-cap company with a capitalization of $213 billion, well above my benchmark target of at least $10 billion-plus since my last report. Danaher’s projected cash flow for 2022 at $8.4 billion is excellent, providing the company with the means for business growth and increased dividends. Danaher’s S&P CFRA rating is three stars or maintained with a one-year price target of $299, beating the guideline. Danaher is currently below target price by 7% and has a high PE of 28, making Danaher a fair long-term buy at this entry point considering the strong growing cash flow driving up the stock price by buying products bolted companies.

I aim for earnings from my positions to consistently beat their quarterly estimates. For the last quarter, on July 21, 2022, Danaher reported earnings that beat expectations at $2.76 by $0.40, compared to a year ago at $2.46. Total revenue was higher at $7.75 billion than a year ago, 7.3% year-over-year and exceeded forecast total revenue of $460 million of dollars. It was an excellent report with expected results, an increase in turnover and an overrun in the result compared to last year. The next earnings report, Q3, will be released in October 2022 and is expected to be $2.31 year over year at $2.39, a slight decline. By Q1 2023, the COVID virus should be well contained in the United States, with the workforce returning to normal, but the rest of the world will continue to battle COVID to maintain incomes and DHR profits above normal. The chart below shows a summary of Q2 adjusted earnings and revenue.

Second Quarter Growth Factors

Annual Revenue Comparison (Q2 Earnings Call Slides)

The Good Business Portfolio likes to adopt all sorts of investment styles, but focuses on buying companies that can be understood, make a fair profit, reinvest profits back into the business, and also generate a good stream of income. Above all, what makes Danaher interesting is the good future growth rate of 22% of its business, and its products and services will be in demand due to the COVID virus in the rest of the world. The graph below shows the growth of the Life Sciences business in Q2, which is expected to continue over the next two years.

growth of life sciences

Life sciences (Q2 Earnings Call Slides)

Risks and disadvantages of the business

The obvious short-term risk for Danaher is that an easy-to-manufacture pill or vaccine will be developed to stop the COVID virus; hope that will happen. Danaher has great global services, and they keep adding businesses to their sales, but you run the risk of onboarding new businesses at short notice. The COVID virus is expected to be brought under control in the United States soon with new vaccines for the BA.5 strain of the virus, reducing revenue, but the rest of the world will take years to control the COVID virus, so Danaher’s Revenue will continue to grow. There is also always the risk of government regulation and the exchange rate against the dollar, which could hurt Danaher’s earnings.


Danaher is an excellent investment choice for the total return growth investor with its well above average total return. The Good Business Portfolio has a small position of 1.7% of the portfolio, and I intend to add to the position when cash becomes available. If you want steady growth and good total return in a growing medical services and products business, Danaher is the right investment for you, and it’s priced high with a possible gain of 7% over the next year. .

The Good Business Portfolio’s total return lags the Dow average by 0.6% from 01/01/2022 to August 26, a loss less than the market’s loss of 10.16% for a total loss of the portfolio of 10.76%. Every quarter after earnings season ends, I write an article giving a full list of the portfolio and performance. The latest article is titled “The Bargain Portfolio: Q1 2022 Portfolio Review.” We still have four months left in the year and the mid-term elections to make the portfolio profitable. The second quarter report is in preparation and is expected to be released next week.


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