Summary
- Danaher has maintained a net earning margin above 15% since 2017.
- In 2024 Q3, the company had a 36.36% liabilities-to-assets ratio, the lowest level since 2017.
- Danaher’s largest customers have reduced their excess of COVID-19-related products. So, Danaher expects a further boost in its sales.
- The company has been successful in generating growth through acquiring other companies. In the last ten years, half of Danaher’s growth has come due to this strategy.
Investment Thesis
I consider Danaher Corporation (NYSE:DHR) a good investment opportunity. The company has kept its net earnings margin relatively stable. Since 2017, this margin has been above 15%. In addition, Danaher has successfully acquired other companies. Over the past decade, this strategy has generated about half of Danaher’s growth.
The company has reduced its liabilities-to-assets ratio. In 2024 Q3, this ratio was 36.36%, the lowest level since at least 2017. The reduction will allow the company to be more resilient if a crisis occurs.
In the first nine months of 2023, Danaher indicates that its largest customers have reduced the excess of COVID-19-related products. In addition, the company indicates that its largest customers have returned to their usual order levels. With stable levels of inventories of Danaher’s customers, the company would increase its sales and net earnings.
Introduction
Danaher Corporation is an American company headquartered in Washington, D.C. The company has three business segments; namely Biotechnology, Life Sciences, and Diagnostics. In 2023, the Diagnostics segment accounted for 40% of the sales, while the other two segments accounted for 60% of the sales in that year, as shown in the left chart below.
Image was created by the author with data from filings
By geographic area, Danaher has 42% of its revenues in North America, followed by Western Europe with 30%. Meanwhile, the remaining geographic areas accounted for 28%, as shown in the right chart above.
Most of Danaher’s revenues come from recurring revenues. Products such as consumables, services, and operating-type lease ((OTLs)) are recurring, which require frequent replacement. In 2023, the recurring revenues represented 78% of the revenues, as depicted in the next chart.
Image was created by the author with data from filings
The Life Sciences segment had the lowest proportion of recurring revenues, with 61%. Meanwhile, the Diagnostics segment had 88% of its revenues attributed to recurring revenues. These figures are good characteristics because Danaher has a stream of constant sales coming from recurring revenues.
