On October 2, 2023, Danaher Corp (DHR, Financial) recorded a daily loss of -13.77%, contributing to a 3-month loss of -10.6%. The company posted Earnings Per Share (EPS) (EPS) of 8.52. But, is the stock modestly undervalued? This analysis aims to answer this question, providing a detailed valuation analysis of Danaher. We invite you to delve into the following analysis.
Introduction to Danaher Corp (DHR, Financial)
Established in 1984, Danaher Corp transformed from a real estate organization into an industrial-focused manufacturing company. Through various mergers, acquisitions, and divestitures, Danaher now primarily manufactures scientific instruments and consumables in three segments: life sciences, diagnostics, and environmental and applied solutions. In late 2022, the company announced plans to divest its environmental and applied solutions group in 2023, focusing entirely on life sciences and diagnostics.
Trading at a current price of $213.94 per share, with a market cap of $158 billion, we compare this with the GF Value of $284.27 to determine if the stock is modestly undervalued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our proprietary method. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on our analysis, Danaher (DHR, Financial) appears to be modestly undervalued. Given this undervaluation, the long-term return of its stock is likely to be higher than its business growth.
Danaher's Financial Strength
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. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Danaher has a cash-to-debt ratio of 0.43, which ranks worse than 68.86% of 228 companies in the Medical Diagnostics & Research industry. Based on this, GuruFocus ranks Danaher's financial strength as 7 out of 10, suggesting fair balance sheet.
Profitability and Growth of Danaher
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Danaher has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $30.40 billion and Earnings Per Share (EPS) of $8.52. Its operating margin is 24.82%, which ranks better than 92.54% of 228 companies in the Medical Diagnostics & Research industry. Overall, the profitability of Danaher is ranked 8 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. Our research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Danaher's 3-year average revenue growth rate is better than 70.1% of 204 companies in the Medical Diagnostics & Research industry. Danaher's 3-year average EBITDA growth rate is 31.9%, which ranks better than 73.4% of 188 companies in the Medical Diagnostics & Research industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital (ROIC) and the weighted cost of capital. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Danaher's return on invested capital is 9.25, and its cost of capital is 7.93.
Conclusion
In conclusion, the stock of Danaher (DHR, Financial) shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 73.4% of 188 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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