DHR Shares Rally 16% In A Week, Now Is Not The Time To Buy The Stock

We believe there are a few things to fear in DHR stock given its overall Moderate operating performance and financial condition. But keeping in mind its Very High valuation, we think that the stock is Unattractive. Here is our multi-factor assessment.

DHR stock has jumped meaningfully recently and we currently find it unattractive. This may feel like a caution, and there is significant risk in relying on a single stock. However, there is a huge value to a broader diversified approach we take with Trefis High Quality Portfolio. We go beyond just equities. Is a portfolio of 10% commodities, 10% gold, and 2% crypto in addition to equities and bonds – likely to return more during the next 1-3 years, and protect you better if markets crash 20%? We have crunched the numbers.

Let’s get into details of each of the assessed factors but before that, for quick background: With $154 Bil in market cap, Danaher provides professional, medical, industrial, and commercial products across Life Sciences, Diagnostics, and Environmental segments, including lab automation, genomics, diagnostics, and analytical instruments.

[1] Valuation Looks Very High

This table highlights how DHR is valued vs broader market. For more details see: DHR Valuation Ratios

[2] Growth Is Inconsistent

• Danaher has seen its top line shrink at an average rate of -2.6% over the last 3 years
• Its revenues have grown 1.9% from $24 Bil to $24 Bil in the last 12 months
• Also, its quarterly revenues grew 3.4% to $5.9 Bil in the most recent quarter from $5.7 Bil a year ago.

This table highlights how DHR is growing vs broader market. For more details see: DHR Revenue Comparison

[3] Profitability Appears Moderate

• DHR last 12 month operating income was $4.4 Bil representing operating margin of 18.4%
• With cash flow margin of 25.7%, it generated nearly $6.2 Bil in operating cash flow over this period
• For the same period, DHR generated nearly $3.4 Bil in net income, suggesting net margin of about 14.2%

This table highlights how DHR profitability vs broader market. For more details see: DHR Operating Income Comparison

[4] Financial Stability Looks Strong

• DHR Debt was $17 Bil at the end of the most recent quarter, while its current Market Cap is $154 Bil. This implies Debt-to-Equity Ratio of 11.3%
• DHR Cash (including cash equivalents) makes up $3.0 Bil of $82 Bil in total Assets. This yields a Cash-to-Assets Ratio of 3.6%

[4] Downturn Resilience Is Moderate

DHR saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• DHR stock fell 44.3% from a high of $332.43 on 3 September 2021 to $185.10 on 30 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $280.76 on 1 August 2024 , and currently trades at $214.99

 
2020 Covid Pandemic

• DHR stock fell 28.2% from a high of $169.05 on 30 January 2020 to $121.39 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 27 April 2020

 
2008 Global Financial Crisis

• DHR stock fell 45.8% from a high of $33.61 on 24 December 2007 to $18.22 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 4 November 2010

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.