Please ensure Javascript is enabled for purposes of website accessibility

Why Danaher Stock Soared in April

By Lee Samaha – May 4, 2020 at 8:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Danaher Stock Quote
Danaher
DHR
$282.29 (1.16%) $3.24
General Electric Stock Quote
General Electric
GE
$67.44 (-0.15%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.