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Why Danaher Stock Soared in April

By Lee Samaha – May 4, 2020 at 8:55AM

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The market shrugged off a disappointing trading update, and focused on the long-term growth prospects at the company.

What happened

Shares in Danaher Corporation (DHR 1.16%) rose 18.1% in April according to data provided by S&P Global Market Intelligence. The move comes in line with a 13% rise in S&P 500 index over the same period.

There's a sense of optimism that the tide is turning with regard to the battle over the COVID-19 pandemic, and investors are looking forward to a rebound in growth as containment measures are slowly being lifted.

A man working in a research lab.

Image source: Getty Images.

However, it would be a mistake to say Danaher's stock merely followed the market higher in April. In fact, it was a very eventful month for the company. Danaher began the month having just completed the acquisition of General Electric's biopharma business, now to be called Cytiva. It's an attractive deal that will add a strongly growing business with a very good cash-generative properties. 

In the middle of April, Danaher updated investors with regard to its first quarter earnings. The news wasn't good. Management estimates its first-quarter non-GAAP (adjusted) core revenue growth will be 4.5%, compared to previous guidance for 6% to 6.5%. In addition, management referred to a "meaningful slowdown in demand" at the end of the quarter and withdrew its full-year guidance.

So what

The fact that the market took Danaher's negative update in its stride is a sign that investors are largely aware that the COVID-19 pandemic is going to hit nearly every company in one way or another. However, there's a difference between companies that may be left with a structural problem after the pandemic is contained -- like travel and commercial aerospace -- and companies that might actually see prospects improve as a consequence of it.

Danaher is arguably in the second camp. It stands to reason that the pandemic will heighten awareness of the need for life sciences tools in order to research and develop drugs. A similar argument applies to Danaher's diagnostics solutions.

Now what

Investors will be looking forward to hearing about management's plans for Cytiva and hoping that the hit from the COVID-19 pandemic doesn't last for more than a few quarters. Danaher's end markets, mid-single-digit revenue growth prospects, and history of expanding the profit margin of its acquired businesses stands it in good stead for the coming years.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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