Danaher (NYSE:DHR) is a company that some investors may associate with being the previous home of current General Electric (NYSE:GE) chief executive officer (CEO) Larry Culp. I’ll admit that was the immediate association I made for the company. And when thinking of Danaher stock, I also assumed that I was looking at an industrial stock.
I was wrong. And that’s because I haven’t really paid attention to the company in a while. Danaher has an interesting history. The core of the company is the Danaher Business System (DBS) . This finds its roots in the Japanese practice of kaizen.
What Danaher does so well is to get profitability out of business units that, on the surface, may not look like they belong together. But when you widen the lens, you see a business that really is very integrated, and at the core of its business is a focus on healthcare and life sciences.
DHR Stock Is Not Mispriced Anymore
In April, Matt McCall was noting that Danaher was suffering from a case of mistaken identity. After the coronavirus-induced selloff that affected all stocks and sectors, Danaher stock was rallying but had yet to get back to pre-pandemic levels (which were also all-time highs).
It’s safe to say that investors are not mispricing the stock anymore. In fact, the stock certainly has a premium valuation. But is it a buy at current levels?
The company’s latest earnings report gives investors no reason to believe it’s not. And one catalyst for that is the novel coronavirus.
Danaher Was a Pandemic Winner
A significant catalyst for Danaher stock has come from its Cepheid diagnostics business. Cepheid produces a Covid-19 test. The key advantage of Cepheid’s test is that it can produce a result in 45 minutes.
It’s impossible to understate the role of accurate testing. Achieving this single objective would be a significant step in getting our society functioning at some level of normal. But testing (for many reasons) has been a one-step forward/two steps back situation. However, the CDC has warned that this fall may be a grim one for the United States with Covid-19, pneumonia, and traditional influenza all converging at the same time.
That’s where Danaher may have another catalyst. Danaher recently announced a 4-in-1 combination test. Not only can this test detect Covid-19, it will be able to detect different strains of influenza (Flu A and Flu B) as well as respiratory syncytial virus (RSV) infections.
The company was “not in a position” to discuss pricing for the 4-in-1 test. However, it expressed confidence in its ability to scale the test for the expected strong demand.
In the company’s forward guidance, it was optimistic that diagnostic sales would continue to be in the high single digits in the current quarter. Significantly, the company was suggesting this without making note of the potential of a second wave of Covid-19 infections.
Is Danaher Stock Losing Momentum?
One of the reasons to buy Danaher stock is the strong momentum it showed in late July. That momentum is starting to fade. Generally, when stocks continue to go up on lower volume, it can signal that a downturn is ahead.
But in this case, there’s too much to like about the company. Therefore, I attribute the lack of volume to little more than institutional investors taking a little break. I expect when these investors return, they will confirm the upward trend in the stock.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.