A Science & Technology Giant That Has Multiplied the S&P 500’s Performance by 7

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to focus on a diversified science and technology giant: Danaher Corporation (NYSE: DHR).

Strengths:

  • Solid Revenue Growth: In 2007, Danaher reported revenue of $11.03 billion; in 2012, the company announced revenue of $18.26 billion, representing year over year annual growth of 10.61%, a trend which is anticipated to continue into the future with projections placing 2016 revenue at $24.42 billion.  This solid revenue growth has been a result of increased spending by businesses following the recovery from the great recession
  • Dividend: At the moment, the company pays out quarterly dividends of $0.03, which annualized puts the dividend as yielding 0.17%, and while this may be a small strength, any dividend is important
  • Institutional Vote of Confidence: 75.58% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Diversified Nature: According to the company’s 2011 annual report, Danaher derives nearly 60% of its revenue from outside of the United States, with its present stretching across more than 50 countries, and with this diversified nature comes a certain level of predictability and security for investors
  • Double Digit Margin: Currently Danaher carries a net profit margin of 12.03%, displaying a strong and profitable company
  • Margin Expansion: In 2007, the company possessed a net profit margin of 11.0%; in 2012, the company withheld a net profit margin of 13.1%, and this trend of margin expansion is widely anticipated to sustain into the future, with projections placing the 2016 net profit margin at 14.9%
  • Reasonable Valuation: At the moment, Danaher carries a price to earnings ratio of 18.72, a price to book ratio of 2.19, and a price to sales ratio of 2.28, all of which represent a company with a reasonable valuation when the company’s growth prospects are taken into account

Weaknesses:

  • Net Debt: Despite possessing $1.68 billion in cash and cash equivalents on their balance sheets, Danaher’s debt load of $5.29 billion results in a net debt of $3.61 billion, a minor weakness of the company
  • Cyclical Nature: Danaher’s success is extremely dependent on overall economic prosperity, as 50% of revenue in 2011 for the company was derived from its test and measurements and life sciences and diagnostics segments, both of which are heavily fueled by disease research spending, and in past economic declines the company has greatly faltered.  This mild cyclical nature could prove to be a weakness in times of downfall

Opportunities:

  • Dividend Growth: Since implementing their dividend program in 1993, Danaher has consistently raised their dividend payouts, and this trend is widely anticipated to sustain into the future as the company should experience revenue growth and currently only possesses a dividend payout ratio of 3%
  • Acquisitions: In January of this year, Danaher acquired Navman Wireless, and further acquisitions could introduce new technologies into the company and fuel product innovation
  • Innovations Stemming From R&D Spending: In 2012, the company poured $1.14 billion into research and development, and any innovations stemming from this spending could lead to revenue growth
  • Capturing Market Share: Capturing market share in any one of the company several industries would substantially benefit the company
  • Emerging Markets: According to the company’s 2011 annual report, nearly a quarter of total revenue was derived from emerging markets such as China, India, and Brazil, and accelerated growth should stem from these markets as spending exponentially increases
  • Continuation of Environmental Concern: In 2011, 18% of total revenue was derived from the company’s environmental segment, which focuses on maintaining water supply and air quality, and a continuation of environmental concern throughout the world will lead to increased revenue for this segment of their business

Threats:

  • Competition: The industries Danaher operates in are extremely competitive, and the battle to offer the best product for the least money can lead to margin contraction
  • Stagnant Global Economic Landscape: A stagnant global economic landscape could severely hurt Danaher, as much of their business is driven by commercial spending, which decreases in economic downfall
  • Cuts in Disease Research: 50% of Danaher’s business is concentrated in segments revolving around providing products utilized in disease research, and with massive potential cuts looming for governments all over the world because of massive debt issues, disease research spending could decelerate, crippling the company

Competition:

Major publicly traded competitors of Danaher include Honeywell International Incorporated (NYSE: HON), Siemens AG (NYSE: SI), Thermo Fisher Scientific Incorporated (NYSE: TMO), and Agilent Technologies Incorporated (NYSE: A). All of these companies operate in the same industries as Danaher, and compete directly with the company. Honeywell is valued at $54.17 billion, pays out a dividend yielding 2.37%, and carries a price to earnings ratio of 18.69. Siemens is valued at $92.38 billion, pays out a dividend yielding 3.65%, and carries a price to earnings ratio of 13.98. Thermo Fisher is valued at $26.94 billion, pays out a dividend yielding 0.80%, and carries a price to earnings ratio of 21.76. Agilent is valued at $15.76 billion, pays out a dividend yielding 1.06%, and carries a price to earnings ratio of 13.87.

The Foolish Bottom Line:

Financially, Danaher is an extremely strong company. The company possesses solid revenue growth, a double digit net profit margin, and a reasonable valuation. Despite the company’s minor debt load and cyclical nature, the company’s future is packed with opportunities that are likely to lead to substantial growth. On any pullback from these all-time high levels, Danaher is a tremendous addition to any long-term portfolio looking to outperform the overall market.


makinmoney2424 has no position in any stocks mentioned. The Motley Fool recommends Thermo Fisher Scientific. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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