2013 Will be Danaher Corporations' Year
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Danaher Corporation (NYSE: DHR) produces high-tech equipment for a broad range of industries, from surgical microscopes to airline smoke detectors. It has been in a slump since the first of April and the bearish pattern looks pretty strong like it is not yet finished regressing. This was not unexpected. Clear back in September of 2011 the conglomerate has been quietly involved in cost reconstructing in response to the weaker economic climate. But this down turn may be a good entry point, or at least an opportune time to take notice of the company because it is gearing for growth in 2013.
If there is anything that is going to keep the stock bearish to neutral in the next coming quarters, it maybe Europe. The recent weakness of the euro against the U.S. dollar is going to have an effect upon Danaher’s yearly earnings. Quarterly results in April had the Euro pegged at $1.30 and it has since retreated to about $1.24. Analysts are considering a 5 cent reduction in the company’s earnings for the year if the Euro continues this way. The company generates nearly a quarter of its sales from Western Europe and a weaker euro reduces the value of European sales—when there are sales!
It is no surprise to anyone that Danaher's industrial businesses, such as test and measurement equipment, were one area of weakness in Europe and this accounts for 32% of revenue. Another area, life sciences business, which relies in part on government research budgets, also dropped in sales. The lone bright spot was the demand for medical diagnostic equipment which remains "pretty good" in Europe. General Electric (NYSE: GE), a competitor had problems in Europe also. Profit growth projections in GE's healthcare operations have been good due to sales outside of Europe. 3M Co. (NYSE: MMM) saw gains in the world’s largest economy eroded by a slump in Europe. The 17-nation euro economy is projected to contract 0.4 percent in 2012, with recessions in countries including Greece and Spain. Any company that is doing business is going to be hurting there.
But on a long term perspective, this dip in the stock is an invitation to buy at some point. Key global companies like Danaher Corp. and 3M Co. are battling a harsh macroeconomic environment and surviving. Europe does remain the short term concern as lackluster sales and unfavorable currency exchange rates have led to declines. While a slow recovery in the U.S. has presented some challenges, emerging markets are still there to tap into.
Another competitor — PPG Industries (NYSE: PPG), even with the weakness in Europe, is still seeing strong growth in the U.S. and other emerging markets, propelling it to new 52 week highs at the beginning of May.
When Danaher purchased Beckman Coulter earlier this year it was to increase its presence in the medical technology field. It is also counting on the acquisition to raise its profile in emerging overseas markets—especially China, where low-cost production and increasing sales in the world’s largest domestic market is a real treasure. Beckman Coulter’s presence in China is big with outstanding sales and service networks. Emerging markets, which also include India, Brazil and Russia, accounted for about 20% of Danaher's revenue. It has acquired nine businesses in emerging markets over the last five years and is looking for more to establish itself in these markets
J.P. Morgan & Co. maintained its Overweight rating for Danaher Corporation, but slightly raised its price target from $53 to $54 and it presently is trading at 51.48. From their viewpoint, one soft quarter does not change our view of the longer-term profile. It just so happens that history will point out that concern over organic growth for the company always has represented a good entry point for the stock. Weakness is an opportunity to buy this one. Watch for a good upside in 2013.
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