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Why Danaher Stock Crashed in February

By Lee Samaha - Mar 6, 2020 at 7:31AM

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The healthcare-focused company's stock got taken down with the rest of the market, but is the market being rational?

What happened

Shares in life sciences and diagnostics focused company Danaher Corporation (DHR 0.39%) slumped 10.1% in February according to data provided by S&P Global Market Intelligence. There's no point ignoring the elephant in the room. The stock's down move in February is correlated with the general market sell-off due to fears around the impact on global growth from the COVID-19 outbreak.

A gloved hand places a slide on a microscope.

Image source: Getty Images.

It may seem puzzling that the market should be so keen to sell off a healthcare stock that would likely see increased spending due to the high-profile spread of a disease, but in the short-term, markets are anything but rational.

To be fair, Danaher is unlikely to escape a negative impact in the short term. If it isn't supply chain disruptions, it's a potential drop in demand coming from a lack of activity. During the first-quarter earnings conference call, Danaher CEO Thomas Joyce discussed the matter in a positive light.

"Obviously, it's a very challenging situation to get a clear handle on in terms of what [the coronavirus'] overall impact is," he said. "We have not seen any specific impact to this point on our business." Clearly, matters have gotten worse since the end of January.

So what

Long-term investors who are confident that the COVID-19 outbreak will ultimately diminish in the same manner as previous respiratory illnesses like SARS and MERS won't be unduly worried by the stock price fall. On the contrary, they will see the outbreak as a catalyst for awareness around research and development and diagnostics in the healthcare sector.

Moreover, there's a lot to like about Danaher in 2020. The pending deal to buy General Electric's biopharma business looks like a great deal and Danaher has great sales momentum -- core revenue growth has been in the mid-single digits in every quarter since the end of 2017.

Now what

If you can stomach some market volatility, and you aren't worried about a long-term impact on the economy from COVID-19, this could be a very good buying opportunity for a stock with exciting long-term prospects. Alternatively, if the impact is lasting, it's unlikely that Danaher will escape the market malaise. Time will tell.

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Stocks Mentioned

Danaher Corporation Stock Quote
Danaher Corporation
DHR
$252.86 (0.39%) $0.98
General Electric Company Stock Quote
General Electric Company
GE
$63.69 (-3.32%) $-2.19

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