No one said investing was easy. And you will struggle to find anyone who says that the recent results of life sciences and diagnostics company Danaher (DHR 7.21%) were easy to understand. The company's earnings and revenue are moving around a lot due to the impact of COVID-19-related revenue, and that's creating a confusing picture. However, after sifting through the numbers and data, it's clear that Danaher's underlying growth looks strong, but there are question marks around its mid-term outlook. 

Danaher's confusing numbers and outlook

A glance at Wall Street analysts' expectations for Danaher's growth for 2022 and 2023 hardly suggests it's a growth stock. After all, revenue growth of 4.3% and 0.5%, respectively, isn't anything to write home about. Most growth investors would walk away at that point. However, if you are prepared to dig deeper, there's a case for buying the stock. 

The company was a significant beneficiary of the COVID-19 pandemic. Its diagnostic systems were used to test for COVID, and its life sciences equipment and consumables were used to develop COVID-related vaccines and therapies. As such, it's essential to separate its COVID and non-COVID-related revenue streams. 

Before getting into the details, here's a summary of the third-quarter earnings so you can see how Danaher makes money. 

Danaher Segment


Core Change

Operating Income

Life Sciences

$3,776 million


$1,045 million


$2,679 million


$761 million

Environmental and Applied Solutions

$1,208 million


$286 million


$7,663 million


$2,015 million

Data source: Danaher presentations.

Management's guidance

Management believes its COVID-related diagnostics testing revenue will fluctuate much more than its COVID-related vaccines and therapies revenue. As such, it offers revenue guidance in the following manner:

  • Core Sales Growth: Excludes acquisitions and foreign currency but includes COVID-19-related testing and COVID-related vaccines and therapies revenue.
  • Impact of COVID-19 Related Testing: Includes revenue from COVID testing.
  • Base Business Core Sales Growth: Excludes acquisitions, foreign currency, and COVID-19-associated testing revenue but includes COVID-19-related vaccines and therapies revenue.

Usually, investors should follow "core sales growth" for an underlying picture of long-term growth. Still, it's a somewhat misleading picture because of declining COVID-19-related test revenue. Therefore, management encourages investors to look at the "base business core sales growth." The idea is that this excludes the COVID-19-related testing revenue. However, "base business core sales growth" includes COVID-related vaccines and therapies revenue. 

What management said

Turning to the particulars, Danaher had a more robust than expected quarter for COVID-19-related testing; CEO Rainer Blair said regarding full-year expectations, "We now expect high single-digit overall core revenue growth, which is up from our prior expectation of mid-single digits."

The relative strength in testing can be seen in management's disclosure that Cepheid (a company in Danaher's diagnostics segment) reported $825 million in revenue compared to expectations for $325 million.

Management expects "a high single to low double-digit core revenue growth headwind from COVID-19 testing" in the fourth quarter. If management is right about the decline, it will be enough to turn "core sales growth" negative in the fourth quarter because the guidance is for a flat to low single-digit decline in core sales growth in the fourth quarter.

It gets even more confusing

At this point, investors should focus on "base business core sales growth." After all, that excludes the COVID-19-related testing revenue, which appears to be hard to predict and is in decline. However, this metric is confusing because it includes COVID-19-related vaccines and therapies revenue (life sciences segment). Management previously said COVID-19-related vaccines and therapies revenue was $2 billion in 2021, dropping to an estimated $1 billion in 2022 and then $500 million in 2023. However, on the recent earnings call, Blair said he now sees the 2022 revenue at $800 million rather than $1 billion. That's a disappointing reduction, and his reiteration of guidance for $500 million for 2023 is questionable under the circumstances. 

Is Danaher stock a buy?

Putting all this together, it's clear that it's unclear what the contribution will be from COVID-19-related testing revenue and COVID-19-related vaccines and therapies-related revenue will be in 2022 and 2023. So, neither the "core sales growth" nor the "base business core sales growth" are reliable underlying growth markers for the company for the next few years. 

On the other hand, Blair also noted that "non-COVID bioprocessing is growing well over 20%, and we continue to see that." Moreover, the underlying business has been improved by COVID-19 -- the company has more diagnostic systems in place to customers from which it can sell other tests, and interest in vaccine development overall surged as a result of COVID.

There's little doubt that Danaher will emerge as a more substantial business out of the pandemic, but there are question marks around its near- to mid-term guidance. As a result, investors who can't stomach some potential disappointment in the fourth quarter should avoid the stock until its medium-term outlook is more precise.