Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Danaher Soared 15.2% in July

By Lee Samaha – Aug 6, 2020 at 2:10PM

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 stock surged to a new all-time high in July and it looks like it has room to run.

What happened

Shares in healthcare-focused industrial company Danaher (DHR 1.33%) rose 15.2% in July according to data provided by S&P Global Market Intelligence. The move comes as a combination of a 5.5% rise in the S&P 500 index in July and a strong set of results from the company on July 23.

The second-quarter earnings report was notable for two reasons:

  • Strong underlying growth trends at the company's existing life sciences and diagnostics businesses
  • The acquisition of General Electric's (GE -1.61%) biopharma business, now called Cytiva, which has made a better-than-anticipated start to life under Danaher

The Cytiva acquisition always looked like a great deal for Danaher, but few investors could have expected such an excellent start. Management outlined that Cytiva grew its core revenue by more than 20% and helped the life sciences segment grow core revenue by 8% in the second quarter. It's a startlingly strong performance considering that instrumentation sales in the segment are being negatively impacted by ongoing closures of non-COVID-19 related research labs. In addition, Cytiva -- a highly cash-generative business which produced $1.3 billion in free cash flow for GE in 2019 -- helped Danaher improve its free cash flow in the second quarter to $1.3 billion from $900 million in the same period last year.

Meanwhile, Danaher's diagnostics segment's core revenue grew 5% in the quarter, driven by triple-digit demand growth at its Cepheid diagnostics business, which produces a COVID-19 test. The pandemic has created a potential growth opportunity for Danaher as medical bodies buying Danaher's diagnostics instrumentation in order to run COVID-19 tests can also be sold Danaher's other tests as well.

A rising stock chart.

Image source: Getty Images.

So what

The addition of Cytiva is exciting for investors because it fills a gap in the company's bioprocessing portfolio and allows it to cross-sell solutions to existing customers.

In addition, the pandemic is likely to encourage future research into diseases -- good news for Danaher's life sciences sales. Meanwhile, the importance of diagnostics testing in battling viral outbreaks is only going to be emphasized as a consequence of the coronavirus pandemic.

Now what

Investors will be hoping the company can continue its three-year run of mid-single-digit revenue growth every quarter. Look out for management's commentary on life sciences growth, both from Cytiva and from the potential for an increase in instrumentation sales as research labs open up again.

In addition, the diagnostics segment has a growth opportunity from growing consumables sales within its newly installed customer base. And finally, management expects the environmental and applied solutions segment (water quality treatment and product ID solutions) to start the road to recovery by reporting third-quarter sales similar to that of last year's third quarter.

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.

Stocks Mentioned

Danaher Stock Quote
Danaher
DHR
$271.82 (1.33%) $3.58
General Electric Stock Quote
General Electric
GE
$83.63 (-1.61%) $-1.37

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

Related Articles

Premium Investing Services

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