Danaher (NYSE:DHR) stock may be the most beloved name on Wall Street that you never heard of.
Shares opened are trading at about $234. That’s a market cap of $166 billion, a price to earnings ratio of more than 47x, and 9x last year’s sales of about $18 billion.
By any conventional measure Danaher is overvalued, but you’re not seeing any rush to sell. All the analysts following Danaher on Tipranks say buy it. Their average price target takes it $20 per share higher than it is now.
The short-term catalysts are COVID-19 and a stellar reputation for management. But there are long-term catalysts as well, involving what I call the Machine Internet.
What is Danaher?
Don’t look for the Danaher name on a supermarket shelf. It’s a conglomerate made up of dozens of companies, described by Danaher’s website as being in life sciences, diagnostics or environmental areas.
Sometimes these descriptions are a stretch. Pantone is a color company. So is X-Rite. What does this have to do with what was once called the Internet of Things?
You must get into the weeds to find out. Arun Saksena, described as a Danaher digital transformation officer, described how it works a few years ago at Videojet Technologies, which makes industrial printers.
Printers have been connected to the internet for years, he wrote, but now they’re looking at “placing data collection devices along the packaging and extended production line, and even downstream.” The result is finer control of production, less downtime, less waste, and more productivity. Sensors on a production line give managers a “dashboard” of precisely how things are operating, from which they can brainstorm improvements.
Earlier this year, analysts were wondering if Danaher could keep growing because of Covid-19. They asked if the shares were overvalued.
The result of this quick-thinking innovation was another beat on sales and earnings for the September quarter. Revenue was up 34% over the previous year at $5.88 billion. Net income was up 38% at $842 million, $1.18 per share. Instead of dropping, shares are up 5% from the announcement.
Love the Management
Danaher’s performance has created an enviable management coaching tree. The best-known product is probably Larry Culp, now CEO at General Electric (NYSE:GE), who led Danaher for about 15 years. The latest CEO is Rainer Blair, who came in at Videojet and later went to Sciex. Sciex makes mass spectrometers and related equipment that make biochemists like my son drool.
Danaher managers don’t just know how to run their companies. They know about buying and selling, too. In 2018 they spun off Envista (NYSE:NVST), which made dental equipment. Then they bought the biopharma business of GE from Culp, who needed the money to keep the rest of GE afloat.
The Bottom Line on DHR Stock
Analysts who like sustainable, well-managed businesses with bright futures are taking victory laps over owning DHR stock.
Danaher is at the heart of the digital transformation now taking place in every manufacturing business.
Factories are where the Machine Internet is starting. Factories can deploy sensors, wireless communications, and analysis software quickly. Unlike consumers, they can make wholesale changes justified by savings. Unlike cities, they don’t have to go through a multi-year process to make change happen.
The result is productivity. The Machine Internet creates higher production, lower cost, and greater competitiveness. This is how the world will be transformed, and Danaher is on the ground floor. If you have a five- to 10-year time horizon, don’t worry about the DHR stock price. Buy it, hold it, and let it work for you.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn.