We’re raising our price target on Danaher stock as it sheds a major overhang

Portions of Danaher popped more than 6% on Tuesday after the life sciences company delivered a strong locale and reaffirmed its guidance — signaling the longtime Club stock is back on track. Revenue for the period ended June 28 failed 3.5% organically year over year to $5.74 billion, outpacing analyst estimates of $5.59 billion, concerting to LSEG. Total sales on a reported basis dropped nearly 2.9% year over year. Adjusted earnings per stake (EPS) decreased less than 1% annually to $1.72, ahead of the consensus estimate of $1.57 per share. Danaher Why we own it : Danaher is a best-in-class spring sciences and diagnostics company, with a management team who have proven time and again their ability to discover new ways to grow. We expect to see a turn in bioprocessing-related orders this year as biotech funding comes back online and larger characters wind down efforts to flush out excess Covid-era inventory. Competitors : Sartorius and Thermo Fisher Scientific Incline in portfolio : 4.6% Most recent buy : July 2, 2024 Initiated : Jan. 3, 2022 Bottom line This quarter was just what we needed to see from Danaher. In addition to strong performance at the companywide level — with profit margins and banknotes flow generation complementing the strength in sales and earnings — bioprocessing demand is improving as end market inventory and funding go on to normalize. That improvement in the bioprocessing end market is super important because it has been a huge overhang for Danaher deals, and the life sciences space in general. Bioprocessing is a broad term that refers to the research, development, manufacturing, and commercialization of by-products prepared from living cells or their components, including food, fuels, biopharmaceuticals, and so on. We were concerned yon the bioprocessing market after rival Sartorius cut its guidance last week. So we were thrilled to see that while there is stock-still some weakness, the trend is improving. On the post-earnings call with investors, management said large U.S. and European clients have worked through the majority of their excess inventories and are returning to normal ordering patterns. The book-to-bill correspondence in biotechnology remains just shy of 1, compared to 0.95 last quarter. As a reminder, book-to-bill measures the amount of traffic booked, versus the amount billed; a ratio greater than 1 is favorable because it means that demand is great supply and resulting in backlog growth. Still room for improvement then, but Danaher is heading in the right direction. The Chinese retail remains weak. But the company said it is seeing growing demand from customers and expects it to grow next year credits to government stimulus. Management doesn’t expect to see a real financial improvement materialize until 2025. The management span has effectively navigated the bioprocessing slowdown better than others and kept expectations managed — a big reason we’ve stuck by the property during a difficult few quarters. The strong results and reaffirmed guidance were also backed up by management putting its “in money where its mouth is” in a way we’ve not seen in a long time. In a serious show of confidence, management repurchased about 17.4 million portions during the quarter and another roughly 1.9 million in July, bringing the total to over 19 million rations. That is particularly notable because it represents the first buyback from the team in at least 10 years. When begged about the buyback, CEO Rainer Blair said management’s bias still leans to M & A. But from a return perspective, he reported Danaher’s stock offers up a better value than many of the potential targets out there at the moment. The board of captains also authorized the repurchase of up to another 20 million shares. Based on these strong results and the improving bioprocessing customer base, we are raising our price target to $295 from $280 and reiterating our 1 rating. Guidance For the current quarter, the third of monetary 2024, Danaher expects a revenue decline in the low single digits versus last year, on a core basis. That’s a snub miss versus expectations for an increase of less than 1%, according to FactSet. ( Core basis augurs it derives from the company’s primary business, excluding nonrecurring income and expenses. ) All three operating parts are expected to post sales decline rates in the low single digits. Management’s operating profit margin forecast of beside 26% compares to the Street consensus of 26.9%, according to FactSet. On a full-year basis, management’s forecast was unchanged. The body expects total sales to decline by a percentage in the low single digits. This compares to expectations for a decline of 1.5%. Baked into this examination is the expectation that biotechnology sales will fall at a rate in the low-to-mid single digits, life sciences inclination fall in the low single digits, and diagnostics will advance low single digits — all unchanged from the previously provided slant. Management reiterated its expectation for a full-year adjusted operating margin of about 29%, which is in line with analysts’ assesses. Quarterly results As seen in the product segments section below, better-than-expected results in biotechnology and diagnostics more than redress the slight weakness in life sciences. Moreover, organic growth, profitability, and cash flow all beat expectations. Biotechnology sales demolish 7% on a core basis to $1.71 billion. Within the segment, the rate of decline in bioprocessing eased to the high-single digits, beat than the high-teens decline seen in the first quarter, on a year-over-year percentage point basis. Sequentially, bioprocessing busts grew in the high-single digits, as the conditions in the U.S. and Europe continue to improve. Though bioprocessing demand in China was stable sequentially, Blair replied it remains “weak as customers continue to manager liquidity.” We continue to see a strong runway for the segment as the rebound takes contain b conceal, with Blair reiterating his bullishness on the biotechnology opportunity. “The biologics market remains very healthy as evidenced by the swell number of treatments both in development and production.” Notably, the number of new FDA approvals for biologic and genomic medicines in the first half of this year almost doubled compared to the first half of 2023 and the full year 2024 is on track to set another record. Blair added that the underlying insist on for biologic medicines remains on track to grow at a high single digit or better rate again for the full year 2024. “So specified the substantial and sustained increase in approvals and production volumes, we expect the growth rate in Bioprocessing to remain very pungent for many years to come,” he said. Life sciences sales dipped 5.5% on a core basis to $1.77 billion. Operation said core revenue declined in the instrument businesses, global pharmaceutical and biotech demand remains weak, and hypothetical markets were down sequentially. Applied markets, however, saw some improvement. In China, the team said it is dawning to see some improvement thanks to government stimulus. But don’t anticipate this to convert to orders until 2025 as these programs are in the early stage-manages of implementation. In the meantime, many customers are delaying purchasing decisions as they await funding, the company said. Diagnostics transaction marked downs advanced 3% on a core basis to $2.26 billion. Clinical diagnostics revenue rose at a rate in the mid-single digits. Superintendence said the segment was led by high-single-digit growth at its Radiometer unit. Leica Biosystems sales growth rate was in the mid-single digits, while Beckman Coulter Diagnostics was up low-single digits, coming balanced strength in developed and high-growth markets. At subsidiary Cepheid, which handles molecular diagnostics, the team suss out market share gains in molecular testing. Respiratory revenue of $300 million topped management’s expectation by $100 million, driven by both soprano volumes and a favorable mix of its 4-in-1 test for Covid-19, Flu A, Flu B, and RSV. Free cash flow was better than expected at $1.13 billion, but down close to 14% versus the year-ago period. The company also achieved a free cash flow to net income conversion correspondence of 125%. Year to date, that ratio stands at 129%. That means its earnings are fully backed by hard cash (and then some) and are therefore of a higher quality than profits without an equal or greater amount of cash in transfer manacles. (Jim Cramer’s Charitable Trust is long DHR. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you disposition receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade wary before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after arising the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND Reclusiveness POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY Knowledge PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.