Here's Why It is Appropriate to Retain Danaher Stock For Now
Danaher Corporation DHR has been benefiting from strength in its Diagnostics segment and accretive acquisitions. The company’s measures to reward its shareholders are encouraging.
Let’s discuss the factors that should influence investors to retain this Zacks Rank #3 (Hold) company for the time being.
Growth Catalysts of DHR
Business Strength: Strength in Danaher’s clinical diagnostics business, driven by growth in Leica Biosystems and Beckman Colter Diagnostics units, has been supporting the Diagnostics segment’s growth. In clinical diagnostics, the company has been witnessing positive responses for its new products like Aperio GT 450 DX and Access NT ProBNP, both of which recently received FDA 510K clearance. Also, solid momentum in the molecular diagnostics business, led by increased respiratory and non-respiratory disease tests, is buoying the segment. Solid momentum and market share gains for its Cepheid business bode well for the segment.
Expansion Efforts: The company believes in expanding its market presence, solidifying its customer base and enhancing product offerings through acquisitions. In December 2023, Danaher acquired Abcam plc, a global supplier of protein consumables, for approximately $5.7 billion. This acquisition expanded the Life Sciences segment. Abcam's long track record of innovation, outstanding product quality and breadth of antibody portfolio are expected to help Danaher solve some pertaining healthcare challenges. Acquisitions boosted total revenues by 2% in the second quarter of 2024.
Rewards to Shareholders: DHR is committed to rewarding its shareholders handsomely through dividends and share buybacks. It paid out dividends of $377 million in the first six months of 2024. In 2023, Danaher paid dividends of $821 million, up around 0.4% year over year. In February 2023, it hiked its dividend by 8% to 27 cents per share. The company has a dividend payout ratio of 13% and an annualized dividend yield of 0.41%.
In the past year, the company’s shares gained 9.2% against the industry’s 0.2% decline.
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Headwinds Plaguing Danaher
Segmental Weakness: Softness in Danaher’s Instrument businesses, due to lower demand in the global pharma and biotech markets, has been weighing on the Life Sciences segment. The company has been witnessing a sales decline in mass spectrometry, flow cytometry and lab automation solutions and microscopy businesses due to soft demand for equipment in the major end markets. Core revenues of the Life Sciences segment declined 5.5% on a year-over-year basis in the second quarter. Softness in the genomics consumables business owing to tepid sales in the plasmids, proteins and next-generation sequencing product lines remains concerning for the segment.
Increasing Expenses: Danaher has been dealing with the adverse impacts of high costs and expenses. The company’s selling, general and administrative (SG&A) expenses increased 4.2% year over year in the second quarter due to the impact of the Abcam acquisition, including the associated amortization expense. The metric, as a percentage of net sales, increased 220 basis points to 32.5%. Also, it's worth noting that in 2023, SG&A expenses as a percentage of net sales increased 400 basis points to 30.7%.
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