Danaher shares fell Tuesday despite the life sciences company returning its core bioprocessing business to growth in the third quarter. Danaher's revenue for the three months ended Sept. 27 rose 3% year over year on a reported basis, to $5.8 billion, beating LSEG estimates of $5.59 billion. On an organic basis, sales increased by 0.5%. Adjusted EPS fell 0.6% year over year to $1.71 but still exceeded the $1.57 per share that was expected. DHR Year-to-date, the stock is down 4% as investors question the sustainability and scale of bioprocessing improvements in 2025. Wall Street's reaction does not reflect the strides Danaher has made in this important end market, which the company's biotechnology segment includes. Some of Tuesday's weakness can also be attributed to profit-taking since Danaher shares jumped following strong results last week from German life sciences peer Sartorius. Bioprocessing is the use of cell components to make a variety of products including targeted therapies. Danaher is a leader in products and services that support healthcare research and development. Bottom Line: Danaher stock's move lower represents a buying opportunity, and we upgrade it to a Buy Equivalent Rating of 1 and increase our price target to $305 per share from $295. As long-standing headwinds regarding inventory divestitures eased, demand from larger bioprocessing customers improved. However, bioprocessing in China remained prohibited. The administration said recovery there may take “more time” in the near term. In addition to better-than-expected biotechnology sales, Danaher's life sciences and diagnostics segments were also strong. Why we own Danaher: Danaher is a leading life sciences and diagnostics company, with a management team that has proven time and time again to find new ways to grow. We expect to see a shift in bioprocessing-related orders this year as biotech financing comes back online and larger clients scale back their efforts to unload excess inventory in the COVID era. Competitors: Sartorius and Thermo Fisher Scientific weight in portfolio: 4.6% Last purchase: July 2, 2024 Start: January 3, 2022 Free cash flow was better than expected at $1.23 billion, representing growth of approximately 12% compared to the same period last year . The company also achieved a free cash flow to net income conversion ratio of 150%. To date, this percentage has reached 135%. This means that its dividends are backed entirely by cash, and then some, and are of higher quality than dividends without an equal or greater amount of cash. During the third quarter, management repurchased approximately 2.6 million shares. Comments Biotechnology sector sales in the third quarter fell 0.7% on an underlying basis to $1.65 billion but beat estimates. Bioprocessing had low-single-digit growth in the quarter. Bioprocessing has been under pressure in recent quarters due to a lack of funding for small businesses following the collapse of a Silicon Valley bank in early 2023 and the drain on larger clients emerging from the Covid pandemic. On a post-earnings call, Danaher CEO Reiner Blair said: “We are not seeing the same level of improvement (for large clients) in fundamental performance from our smaller clients. Despite the modest improvement in the (biotechnology) financing environment, they continue to To rationalize their treatment programs and be cautious in their investments.” Life Sciences segment sales were better than expected, but fell 2% on an underlying basis to $1.78 billion. China remained a headwind, with Blair saying during the call that “the stimulus measures announced in China have not yet translated into meaningful order activity as customers are still awaiting details on the implementation of these programmes.” Outside China, demand remains fairly weak but is expected to improve. Diagnostics segment sales increased 5% on an underlying basis to $2.36 billion, beating estimates. At subsidiary Cepheid, which handles molecular diagnostics, the team highlighted “broad strength” in both the respiratory and non-respiratory parts of the business. Respiratory revenue of $425 million more than doubled management's expectations due to higher volumes and favorable mix of its 4-in-1 test for COVID-19, influenza A, influenza B and respiratory syncytial virus (RSV). Guidance For the current, fourth quarter of fiscal 2024, Danaher expects revenue to decline in the low single digits compared to last year, on an underlying basis. This is a beauty queen. Expectations were for a 2.6% increase, according to FactSet. Management's forecasts for the full year were unchanged. The team expects total sales to decline by low single digits compared to expectations for a decline of 0.5%. (Jim Cramer's Charitable Trust is long DHR. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. No specific results or profits are guaranteed.
In this illustration, the Danaher logo is displayed on a tablet.
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Danaher Shares fell Tuesday despite the life sciences company returning its core bioprocessing business to growth in the third quarter.
