Shares of Danaher (NYSE:DHR) rose a whopping 48.8% in 2019, according to data provided by S&P Global Market Intelligence. It marks another year of strong progress from the company, and the reasons come down to a combination of its operational success, its quality of earnings, and a game-changing deal to buy General Electric's (NYSE:GE) biopharma business. The three points can be summarized as follows:
First, Danaher's underlying performance has exceeded expectations. For example, the company started the year expecting core revenue growth of 4% for 2019, but CEO Tom Joyce now thinks it will be something in the region of 5.5% to 6.5%.
Second, Danaher's outperformance needs to be put in the context of a year when many other companies with an industrial focus have disappointed due to slowing industrial production growth and the fallout from the trade conflict.
Third, the agreement to buy GE's biopharma business is increasingly looking like a great deal for Danaher shareholders. Not only is the deal at a discount to the valuations that Danaher and its peers trade at, but the biopharma business also appears to be outperforming the expectations of Danaher's management at the time the deal was announced in the spring.
The developments in 2019 -- which include the successful spinoff of the company's underperforming dental business Envista (NYSE:NVST) -- help to underscore the excellent work Joyce has done in recent years in continuing the company's excellent track record of acquisitions and restructuring the portfolio of the business. In the last few years, Joyce has spun off a collection of industrial businesses, now listed as Fortive (NYSE:FTV), and the previously mentioned Envista.
As you can see below, all three businesses trade at valuation premiums compared with what they did before the spinoffs took place -- a testimony to the potential for managements to create value for shareholders through corporate actions. For reference, enterprise value (market cap plus net debt) to EBITDA is a commonly used valuation metric.
Trading at more than 25 times earnings estimates for 2020, Danaher's valuation certainly isn't cheap on a superficial basis. But the company's increasing exposure in life sciences and diagnostics means it's the sort of stock that investors will go to in uncertain times. Meanwhile, the GE biopharma acquisition will boost earnings in the future.
All told, it's hard to see the stock repeating its performance of 2019, but it remains an attractive option for long-term investors looking for a defensive growth stock.