We think that Corning stock (NYSE: GLW) currently is a better pick compared to Danaher stock (NYSE: DHR), due to its comparatively lower valuation and better growth prospects. GLW trades at about 2.3x trailing revenues, compared to 8.1x for DHR. Even if we were to look at other valuation metrics, Corning’s 14x price to operating income ratio (P/EBIT) is much lower than 31x P/EBIT for Danaher.
Although both the companies saw a rise in revenue over the recent quarters, led by economic recovery, the growth has been better for Danaher, aided by high demand for its products related to Covid-19 vaccine and treatment production. Looking at stock returns, GLW, with -6% returns over the last six months, has underperformed DHR, which is up 24%, as well as the broader markets, with an 11% rise for the S&P500 index.
However, there is more to the comparison. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating margin growth. Our dashboard Corning vs Danaher: Which Stock Is A Better Bet? has more details on this. Parts of the analysis are summarized below.
1. Danaher’s Revenue Growth Has Been Stronger
- Danaher’s revenue growth over the last twelve month period was stronger than Corning (38% vs. 28%), given a high demand for Covid-19 related products.
- For Corning, the revenue growth was partly driven by increased demand for gasoline particulate filters, given the increased adoption of the emission regulations in Europe and China.
- Even if we were to look at the three-year average revenue growth, Danaher’s last three year CAGR of 13.1% is higher than just 3.9% for Corning.
- Corning’s sales during the pandemic were largely impacted by lower production at its facilities, a decline in capital spending impacting its optical communications business, and a drop in vehicle production impacting its environment technologies business.
- Danaher, on the other hand, saw its sales expand, even during the pandemic, as there was a high demand for its Life Sciences products, which includes instruments and consumables that are primarily used to study the genes, proteins, metabolites, and cells. This helps the pharmaceutical companies to test and manufacture new drugs and vaccines.
- Looking forward, Danaher’s revenue growth rate is expected to slow, with the overall demand for Covid-19 related products expected to come down.
- However, now that the vaccination rate is on a rise, and economies are gradually opening up, Corning has seen a strong recovery in overall sales. That said, with chip shortages impacting overall automobile production, Corning’s automotive business may see slower growth in the near term, while its other businesses, primarily optical fiber, is expected to see strong demand to support 5G expansion for large carriers.
- The table below summarizes our revenue expectation for GLW and DHR over the next three years, and points to a CAGR of 4.2% for Danaher, lower than a CAGR of 6.1% for Corning. Also, our Corning Revenues dashboard provides more insight on the company’s revenues.
2. Danaher Is More Profitable
- Looking at profitability, similar to the trend seen in revenue growth, Danaher’s operating margin of 26% over the last twelve month period is better than 17% for Corning.
- This compares with 18% and 14% operating margin seen in 2019, before the pandemic, respectively.
- Even if we were to look at the last three year average operating margin, Danaher’s 19% figure is better than 13% for Corning.
- Although there are inflationary headwinds and supply chain constraints, we don’t expect a significant impact on margins for both companies, primarily due to higher sales and both being able to pass on the rise in costs to the customers.
The Net of It All
- Now that over half of the U.S. population is fully vaccinated against Covid-19, with overall economic activity picking up, the demand for Covid-19 related products may see slower growth next year, impacting the pace of revenue growth for Danaher, in particular.
- That said, Covid-19 is proving more difficult to contain than initially thought, due to the spread of more contagious virus variants and infections in some of the geographies, including Europe, are higher than what they were a few months back.
- The concerns around Omicron have spooked the markets at large with several confirmed cases across the globe. If there is another large spike in Covid-19 cases from the new variant, it will disrupt economic recovery, but at the same time, it will likely result in a continued demand for Covid-19 related products, bolstering revenue growth for Danaher.
- Despite better revenue growth and operating margins for Danaher, we find Corning’s current valuation to be seemingly more attractive, with DHR stock trading at about 8.1x trailing revenues, versus just 2.3x for GLW stock.
- Even if we were to look at financial risk, Danaher’s 10% debt as a percentage of its equity is better than 22% for Corning, but Corning’s 7% cash as percentage of assets is higher than 3% for Danaher, implying that Corning has a better cash cushion while Danaher has a better debt position.
- Overall, going by performance over the recent years, Danaher may appear to be a better bet. However, if we were to look at the future outlook, Corning seems to have better prospects with its revenue rising at a faster pace compared to Danaher, and this clubbed with a better valuation means it will likely offer higher returns compared to DHR stock.
- The table below summarizes our revenue and return expectation for GLW and DHR over the next three years, and points to an expected return of 16% for GLW over this period vs. -9% for DHR. Our dashboard Corning vs Danaher has more details on how we arrive at these numbers.
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|S&P 500 Return||0%||25%||109%|
|Trefis MS Portfolio Return||-1%||42%||282%|
 Month-to-date and year-to-date as of 12/16/2021
 Cumulative total returns since 2017