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Will Danaher Continue to Witness Growth on DBS Strength?

The year 2016 was spectacular for global conglomerate Danaher CorporationDHR , marked by solid quarterly performances, accretive acquisitions and a historic divesture, which split the company into two units. Year 2017 began on an impressive note as well, as shares of the company appreciated 10.6% year to date, miles ahead of the Zacks categorized Diversified Operations industry's average gain of 1.6%.

The company has an excellent earning surprise history, with an average positive surprise of 6.6%, beating estimates each time over the trailing four quarters. Recently, the stock has witnessed upward estimate revision, which reflects bullish sentiment. In the past one month, the Zacks Consensus Estimate for full-year 2017 earnings inched up from $3.92 to $3.93 on the back of three upward estimate revisions versus zero downward.

Let's discuss the Zacks Rank #2 (Buy) company's key growth drivers and potential catalysts that will likely drive the stock higher.

Growth Catalysts

Danaher's key strengths include an efficient management team, impressive customer base and wide geographic presence. The company's operating culture, Danaher Business Systems ("DBS"), is a key differentiator. It provides a set of philosophies, systematic processes and tool sets to drive continuous improvement. Leveraging on DBS, Danaher has consistently driven gross and operating margin, cut administrative expense and improved sales.

In fourth-quarter 2016, DBS contributed significantly to Danaher's year-over-year core revenue growth, higher adjusted earnings per share and free cash flow. Core gross and core operating margins were up 100 basis points in the quarter. This strong margin expansion proved conducive to adjusted net earnings growth. The strong free cash flow highlights Danaher's capability to invest in both organic and inorganic growth initiatives, going forward.

Encouragingly, each of the company's platforms has leading brands, high market share in multi-billion dollar markets and impressive secular growth, which signals bright prospects for the future. Last year, the company completed the Fortive Corporation FTV spin-off and split itself into two independent, publicly traded companies.

Post spin-off, it reorganized its business into four segments. Each of these segments have businesses with a recurring revenue structure and strong exposure in healthcare and environmental business verticals. The strategic spin-off also represents Danaher's efforts to shift to less volatile end-markets and build a consumables base, especially in the dental, life sciences and water businesses.

This apart, Danaher's strategic acquisition strategy, for expansion in targeted regions, is also expected to stoke growth. During full-year 2016, the company acquired eight firms across all five platforms for nearly $5 billion and these accounted for 4% of sales growth. Most recently, the company announced the acquisition of Advanced Vision Technology, which develops automatic print inspection systems. Other two notable acquisitions from the last quarter include that of Cepheid and Phenomenex.

We believe that strategic buyouts, a strong portfolio and positive industry trends will continue to stoke growth for Danaher in the upcoming quarters.

Other Stocks to Consider

Some other stocks worth considering in the industry are Leucadia National Corp. LUK and 3M Company MMM . You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Leucadia National Corporation delivered an average positive earnings surprise of 60.9% in the last reported quarter. It currently sports a Zacks Rank #1.

3M Company currently carries the same Zacks Rank as Danaher. The company has delivered an average positive earnings surprise of 1.9% for the trailing four quarters.

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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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