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Can Danaher (DHR) Pull a Surprise this Earnings Season?

Danaher Corp.DHR is scheduled to report third-quarter 2015 results before the opening bell on Oct 22.

Last quarter, the company reported a positive surprise of 3.9%. Notably, for the trailing four quarters, the stock posted an average positive surprise of approximately 1%.

Let's see how things are shaping up for this announcement.

Factors to Consider

The Danaher Business System (''DBS''), which focuses on critical areas of quality, delivery, cost and innovation, has proved to be a major growth driver for the company, and is expected to be conducive to its third-quarter earnings as well. During the second quarter, DBS had contributed toward robust growth in core revenues, impressive margin expansion, strong cash flow and better earnings.

This apart, the company's initiatives to expand its product portfolio are expected to support top- and bottom-line performance in the third quarter. While the offerings introduced during the second quarter including Fluke Connect Asset System is projected to boost the profitability of Test & Measurement segment; VERIS molecular diagnostic system and workflow solutions, including BioBA, will likely be accretive to the performance of Life Sciences & Diagnostic segment.

Moreover, Danaher's tactical acquisitions have been complementary to its overall growth. The Bioptigen acquisition, completed in the second quarter, is expected to improve the company's foothold in the ophthalmology market. Also, successful integration of Netscout has strengthened the firm's network management tools and security solutions, and will likely drive growth during the third quarter.

Further, we believe a surge in the elderly population of Europe, coupled with significant prospects in China, the Middle East and North America, will help drive the company's sales in the Life Sciences & Diagnostics and Dental segments, thereby aiding profitability.

However, economic weakness in Latin American countries like Brazil and certain European regions like Russia may prove to be a concern this earnings season. Moreover, intensifying market competition and stiff price wars may pose significant headwinds for the third quarter of 2015. Volatility in foreign currency rates may also add to Danaher's woes.

Earnings Whisper

Our proven model does not conclusively show that Danaher is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Earnings Surprise Prediction) and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as you will see below.

Negative Zacks ESP : Danaher has a negative Earnings ESP of approximately 0.96%, which is the difference between the Most Accurate estimate of $1.03 and the Zacks Consensus Estimate of $1.04.

Zacks Rank : Danaher's Zacks Rank #2, when combined with negative ESP, makes surprise predictions difficult.

Note that we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

Stocks that Warrant a Look

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Allegiant Travel Company ALGT , earnings ESP of +0.76% and a Zacks Rank #2.

The Chubb Corporation CB , earnings ESP of +3.57% and a Zacks Rank #1.

Capital One Financial Corporation COF , earnings ESP of +2.08% and a Zacks Rank #3.

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CAPITAL ONE FIN (COF): Free Stock Analysis Report

DANAHER CORP (DHR): Free Stock Analysis Report

CHUBB CORP (CB): Free Stock Analysis Report

ALLEGIANT TRAVL (ALGT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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