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Danaher (DHR) Q4 Earnings: What's in Store for the Stock?

Danaher Corp.DHR is set to report fourth-quarter and full-year 2016 earnings results before the opening bell on Jan 31.

Last quarter, the company posted a positive earnings surprise of 4.8%. Danaher has a decent earnings surprise history, beating estimates thrice over the trailing four quarters. The stock has an average positive surprise of 6.1%.

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

Factors to Consider

Danaher has been significantly driving its overall financial performance by deploying the Danaher Business System ('DBS'), which is a set of tools and processes designed to boost business performance in critical areas. Given that DBS has proved itself to be the key profit churner for the company, we believe, it will contribute to Danaher's year-over-year core revenue growth, high teens adjusted earnings per share rise and free cash flow during the fourth-quarter.

Danaher has successfully repositioned itself as a healthcare company, fortifying its presence in the healthcare and dental markets, which has been supplementing its top line for the past few quarters. Most of the company's platforms in Life Sciences and Diagnostics have been performing well and are likely to drive sales for the soon-to-be-reported quarter. Also, Danaher's bolt-on acquisitions are expected to boost the top and bottom lines.

During the first nine months of 2016, the company acquired five businesses, for a total consideration of $100 million in cash, net of cash acquired. Improvement in third-quarter revenues mainly came on the back of positive contributions from acquired businesses (which accounted for 14.5% of growth). Recent acquisitions like Cepheid and Phenomenex are anticipated to reinforce the company's diagnostics and Life Sciences business. Cepheid is likely to generate $618-$635 million in revenues this year, which will add to Danaher's $5-billion revenue base.

Despite these positives, the sluggish macroeconomic environment is likely to hurt Danaher's revenues and profits for the quarter to be reported. Danaher's prospects, post Fortive spin-off, and its ability to execute its restructuring plans effectively have also raised a concern. Softness in industrial markets in China, North America, Latin America and the Middle East has been hampering the company's business significantly and can prove to be a drag on the upcoming results as well.

Furthermore, weak academic business in key end markets, including Europe, is also adding to the company's woes. These apart, foreign currency fluctuations are a spoilsport for Danaher. In addition, intense competition and increasing consolidation in the industry raise the company's woes.

During the Fortive divesture, Danaher offloaded its leading brands, namely Fluke, Qualitrol, Tektronix, Gilbarco Veeder-Root, Kollmorgen and Matco Tools, which became part of Fortive. Absence of revenues from these brands and other costs of the separation are likely to affect the company's fourth-quarter results to a great extent.

Earnings Whispers

Our proven model does not conclusively show that Danaher is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of -0.97% for Danaher as the Most Accurate estimate is pegged at $1.02, while the consensus estimate is pegged higher at $1.03. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Danaher Corporation Price and EPS Surprise

Danaher Corporation Price and EPS Surprise | Danaher Corporation Quote

Zacks Rank: Danaher's Zacks Rank #3, when combined with negative ESP, makes surprise prediction difficult. Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

American Financial Group, Inc. AFG , which is set to report fourth-quarter earnings on Feb 1, has an Earnings ESP of +5.56% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

The Allstate Corporation ALL has an Earnings ESP of +3.73% and a Zacks Rank #3. The company is slated to report fourth-quarter earnings on Feb 1.

AXIS Capital Holdings Limited AXS has an Earnings ESP of +6.45% and a Zacks Rank #3. The company is set to report fourth-quarter earnings on Feb 1.

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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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