Life sciences, diagnostics, and environmental science company Danaher (DHR -1.07%) served notice that it's on an excellent growth trajectory, even after the positive effect of the COVID-19 pandemic fades as it turns into an endemic. As such, the stock deserves a close look from investors looking for a relatively safe way to park money as the economy starts to slow, and for a stock to hold for the long term. Here's why. 

Three reasons to buy Danaher stock for the long term

The recently delivered second-quarter earnings report helped highlight the case for the stock and why it can deal with any economic recession. There are three key arguments:

  • While COVID-19-related revenue (diagnostic testing and life sciences tools to research vaccines and therapies) is tailing, the company is seeing robust growth in non-COVID-related life science and diagnostics sales. 
  • The structure of Danaher's business -- with the so-called razor/razorblade model -- means it has robust recurring revenue streams that should hold up in a downturn.
  • Danaher's end markets are favorable and have been strengthened by the pandemic, meaning it's relatively recession-resistant. 

Non-COVID-related sales

The question of "What happens to Danaher after COVID-19?" is naturally at the front of investor thinking. After all, no one wants to pile into a stock on seemingly attractive valuations, just as its artificially boosted earnings are about to collapse and make the stock look extremely expensive. 

Management has done an excellent job articulating trends in its business. That said, it can get a little confusing, but I'll do my best to explain. First, management gives guidance in terms of:

  • Core sales growth, which is growth excluding the effect of acquisitions and foreign exchange movements.
  • Effect of COVID-19-related testing (diagnostics).
  • Base business core sales growth, which is core sales growth that excludes the effect of COVID-19-related testing.

The idea is that base business core sales growth will give investors a better idea of how sales will trend after the pandemic. If that's the case, then investors can expect high-single-digit growth in the future.

Danaher Guidance

Full Year 2022 Growth

Core sales growth


Effect of COVID-19-related testing

Low single-digit

Base business core sales growth

High single-digit

Data source: Danaher presentations.

That's fine, but there's still the question of COVID-19-related revenue for Danaher's life sciences tools used for vaccines and therapies. The big news from the second-quarter earnings call comes from management's update on the matter. CEO Rainer Blair discussed COVID-19 testing and vaccine/therapies revenue and estimated that testing revenue would drop from $2.5 billion in 2022 to $1.2 billion in 2023. Meanwhile, COVID-19-related vaccines/therapies revenue would be $1 billion in 2022 (down from $2 billion in 2021) and $500 million in 2023.

In total, it's a drop of $1.8 billion from 2022 to 2023. Still, Blair believes Danaher will generate low single-digit revenue growth in 2023, and Wall Street agrees with analysts pricing in 3.5% top line growth, from $30.6 billion in 2022 to $31.7 billion in 2023.

In support of this view, Blair said non-COVID-19-related vaccines/therapies revenue is currently growing more than 20%, and that "we would expect certainly for 2023 to continue to see elevated levels of non-COVID activity probably above the low-double-digits that we have seen historically." This would be above the historical growth rate in 2023 as well.

Wall Street is penciling in low single-digit growth in 2023, as the significant drop-off in COVID-19-related revenue (testing and vaccines/therapies) is more than offset elsewhere, finessing into high single-digit growth in 2024. 

Robust revenue streams and recession resistance

An economic slowdown will affect Danaher -- healthcare spending still requires funding. Still, Danaher is relatively well positioned, with 75% of its business coming from recurring revenue. Moreover, the pandemic has helped improve its business's quality and growth potential by significantly expanding its installed base of diagnostic platform installations via the need for Danaher's COVID-19 tests.

Similarly, the explosion of investment in vaccines/therapies strengthened Danaher's position in bioprocessing. Indeed, Blair noted: "Today, there are over 1,500 monoclonal antibody-based therapies in development globally, which is up more than 50% from just five years ago." Danaher's bioprocessing technology is used in the production of therapeutic monoclonal antibodies.

Looking ahead 

Trading on 26.6 times estimated 2022 earnings, Danaher isn't a superficially cheap stock, but it's the sort of stock investors should be looking to pick up on some market weakness. In addition, long-term investors who enjoy investing in high-quality companies will be attracted to the stock. Not least, as Danaher is demonstrating, it can grow firmly even as the pandemic turns into an endemic.