- Danaher raised its guidance expectation and sent shares soaring.
- Analysts underestimate the company's performance, setting it up to rebound in 2024.
- The question for investors is whether this stock will rally higher in the year's first half or pull back to firmer support before moving higher later in the year.
- 5 stocks we like better than Danaher
Danaher Corporation NYSE: DHR shares went into a tailspin when the Abcam deal came into question, but the dip turned out to be a buying opportunity in this life-sciences company. The dip hit bottom soon after, and even weak guidance could not lower the market. Since then, the stock price has rebounded to reclaim all the lost ground because the fear was unfounded, and now the rebound is gaining momentum. The company updated what was overly cautious guidance, sending the stock to a new multi-year high. The question is if it can move higher from here and when.
Analysts call the bottom in Danaher Corporation
The analysts have yet to issue revisions based on the new guidance. Even so, the trend ahead of the release is favorable to share prices, and the guidance aligns with an outlook for market bottoming. Marketbeat.com tracks 17 analysts with current ratings, and the data has two significant trends. The first is that the consensus sentiment is up from Hold to Moderate Buy compared to last year.
The 2nd is that the price target trended lower over the last year but hit bottom last month. Since then, the target has begun to edge higher, with analysts at firms like Goldman Sachs expecting a rebound in life sciences this year.
In Goldman Sachs's view, the life sciences industry is normalizing after the COVID-19 runup and is expected to return to growth in 2025 and 2026. They target 5% growth in both years but may underestimate the market turnaround. The rise of AI is driving a new age of healthcare innovation that will impact it at all levels. Until then, the consensus target assumes about 8% upside for the market, enough to set a two-year high.
Regarding the consensus for earnings and the update to guidance, the seventeen analysts tracked by Marketbeat.com expect a near-30% decline in revenue with a weakened margin to compound the bottom line shrinkage. That’s double the new guidance expected decline, and why the stock advanced following the news.
The Danaher dividend cut doesn’t matter
Danaher pays a dividend and recently cut the distribution, but it doesn’t matter to the long-term trajectory of the stock price. The yield was small before the cut and not much smaller after, about 0.4%, with shares near $235, because the company chose to invest in its turnaround and growth. The cut was worth 11% to investors but frees up cash flow, allowing the company to focus on future revenue, margin expansion and earrings. Ultimately, the company only pays dividends because some investors and mutual funds will only invest in dividend-paying stocks.
The balance sheet is in fine shape. The company carries debt, but leverage is low, and the cash position is solid despite an acquisition made this year. The company bought Abcam, a leader in protein research tools, for $5.7 billion and closed the deal in December. It should add 2.5% to 3% to the top line, while synergies aid bottom-line results.
The technical outlook: Danaher advances, faces resistance
The price action in Danaher is solid but may not immediately take the stock to a new high. The market struggles with resistance at a critical pivot point and may fall back to firmer support levels before moving much higher. In this scenario, support is likely at the $220 level, which coincides with the 150-day EMA and a target for robust support. So long as the market shows support at or near this level, it should continue sideways within the upper portion of its trading range with a chance of setting new highs in the year’s first half. If not, the stock could retest support as low as the $200 level and sustain a rally until the 2nd half of the year.
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