Shares in Danaher (NYSE: DHR) rose 10.2% in November, according to data provided by S&P Global Market Intelligence. The move marks an unusual period of stock price performance from the company. Danaher stock was up nearly 18% on a year-to-date basis through the end of September, only to slump in line with the market for much of October.
Continue Reading Below
However, a good set of third-quarter results acted as a catalyst for the run that saw Danaher significantly outperform the market in November. In the third-quarter earnings presentation, management raised guidance for full-year 2018 earnings per share, and it now expects non-GAAP diluted EPS in the range of $4.49 to $4.52 from a previous range of $4.43 to $4.50.
Despite another quarter of disappointing performance in the dental segment (revenue declined 2% in the quarter), Danaher's overall core revenue grew 6.5%, with life sciences and environmental & applied solutions core revenue both achieving growth in the high single digits. The final segment, diagnostics, grew core revenue at a 5.5% rate in the quarter.
The third-quarter earnings report was the kind that confirmed Danaher's status as a relatively safe stock that also has growth prospects. It's worth noting that the underperforming dental segment is set to be spun off next year. That should improve the growth profile of the stock.
Moreover, spinning off the dental segment will make the company even more recession resistant. The life sciences and diagnostics segments generate a significant amount of revenue from consumables sales, so they tend to hold up better in a downturn. For reference, Danaher generated around 65% of its revenue from consumables in 2017.
If the recent market sell-off is due to a fear of slowing global economic growth in 2019, then Danaher's relative outperformance is an indication that it's a stock worth looking at in order to diversify your portfolio away from too much market risk. That said, on a forward P/E ratio of 23 times earnings, it's hard to argue that Danaher is an undervalued stock.
As ever with highly rated stocks, the onus is on Danaher to deliver on its earnings in 2019 and complete the spinoff of the dental business in line with management plans. The stock isn't cheap, but it is high quality. And if you are worried by recent market turbulence and are looking for a company with growth prospects not dependent on the economy, then Danaher could fit the bill.
10 stocks we like better than DanaherWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Danaher wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of November 14, 2018