Danaher brings bioprocessing back to growth. We move our rating back to Buy

Shares of life sciences company Danaher fell on Tuesday even as its key bioprocessing business returned to growth in the third quarter. According to reports, Danaher’s revenue increased 3% year-on-year to US$5.8 billion in the three months ended September 27, exceeding LSEG’s consensus estimate of US$5.59 billion. From an organic perspective, sales grew 0.5%. Adjusted earnings per share fell 0.6% year over year to $1.71, but were still above expectations of $1.57 per share. DHR YTD mountain Danaher YTD shares fell 4% as investors questioned the sustainability and scale of bioprocess improvements through 2025. progress in the company’s biotechnology segment). Tuesday’s weakness could also be attributed to profit-taking, as Danaher shares rose on solid results from German life sciences peer Sartorius last week. Bioprocessing is the use of cellular components to manufacture a variety of products, including targeted therapies. Danaher is a leader in products and services that support healthcare research and development. Bottom Line: Danaher’s share price decline presents a buying opportunity, and we upgraded the stock to a 1 rating equivalent to Buy and raised our price target to $305 per share from $295. Demand from large bioprocessing customers improved as long-term destocking headwinds subsided. However, bioprocessing in China remains suppressed. Management said recovery may take “more time” in the short term. In addition to better-than-expected biotech sales, Danaher’s life sciences and diagnostics businesses also performed strongly. Danaher Why We Own It: Danaher is a premier life sciences and diagnostics company whose management team has proven time and time again their ability to find new ways to grow. We expect bioprocessing-related orders to shift this year as biotech funding comes back online and major customers gradually reduce their efforts to clear excess COVID-era inventory. Competitors: Sartorius vs. Thermo Fisher Scientific Portfolio Weight: 4.6% Last Buy: July 2, 2024 Launch: January 3, 2022 Free cash flow was better than expected at $1.23 billion, nearly up from the same period last year 12%. The company also achieved a conversion ratio of free cash flow to net profit of 150%. So far this year, the ratio is 135%. That means its profits are entirely backed by cash, and then some, and are of a higher quality than those without the same amount or more cash on hand. In the third quarter, management repurchased approximately 2.6 million shares. Commentary: Biotech unit core sales fell 0.7% to $1.65 billion in the third quarter, but exceeded expectations. Bioprocessing achieved low-single-digit growth in the quarter. Bioprocessing has been under pressure in recent quarters as small businesses lack capital following the collapse of Silicon Valley Bank in early 2023 and as the pandemic causes large customers to draw down inventories. On a post-earnings conference call, Danaher Chief Executive Rainer Blair said: “We haven’t seen the same level of improvement in underlying performance from small customers (large customers). Despite the (biotech) financing The environment improved slightly, but they continued to rationalize their treatment plans and remain cautious on investments. Sales in the life sciences division were better than expected, but core sales were still down 2% to $1.78 billion, Blair said. “The stimulus measures announced by China have not yet translated into meaningful order activity as customers are still awaiting details on the implementation of these plans,” said the company on the call. “Outside of China, demand remains somewhat weak but is expected to improve. Diagnostics core sales rose 5% to $2.36 billion, beating expectations. At Cepheid, the subsidiary responsible for molecular diagnostics, the team highlighted the business’s continued success “Broad strength” in respiratory and non-respiratory areas. Respiratory revenue hit $425 million, more than double management’s expectations, driven by higher sales and a favorable mix of 4-in-1 tests for Covid-19, influenza A, influenza B and respiratory syncytial virus (RSV). Guidance For the current quarter (fourth quarter of fiscal 2024), Danaher expects core revenue to decline by a low single digit from last year. That’s a miss. Growth is expected to be 2.6%, according to FactSet. Management’s full-year forecast remains unchanged. The team expects total sales to decline by low single digits, compared with expectations for a 0.5% decline. (Jim Cramer’s Charitable Trust is long DHR. See here for the full list of stocks.) 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In this photo illustration, the Danaher Corporation logo is displayed on a tablet.

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Danaher Shares fell on Tuesday even as the life sciences company’s key bioprocessing business returned to growth in the third quarter.