Danaher gives investors reasons to stick around, sending beaten-up shares flying
Danaher shares soared on Tuesday after the supplier of tools and equipment to drugmakers and hospitals provided an upbeat initial forecast for growth next year. After an extended stretch of sluggishness, investors were happy to look past third-quarter results and current-quarter guidance that were solid, not stellar. Revenue for the three months ended Sept. 26 increased 4.5% year over year to $6.05 billion, topping the consensus estimate of $6.01 billion, according to LSEG. On a core basis — which strips out the impact of currency fluctuations to provide a better understanding of actual demand — sales were up 3% versus the year-ago period. Adjusted earnings per share (EPS) totaled $1.89, exceeding the $1.72 estimate, LSEG data showed. On an annual basis, adjusted EPS was up 10.5%. Shares of Danaher climbed more than 6.5% Tuesday, to about $222 apiece. That has the stock on track for its highest close since late January. DHR 1Y mountain Danaher’s stock performance over the past 12 months. Bottom line Danaher has tested our patience in recent quarters as the post-pandemic recovery proved challenging for companies that serve the biotech and pharmaceutical industries; a material presence in China added another hurdle to overcome. But a market reaction like we’re seeing Tuesday is why we were willing to stay invested in Danaher, once a reliable outperformer. Shares were somewhat volatile in premarket trading and dipped at the start of the conference call. Perhaps there were some investors out there who were disappointed that management kept its full-year earnings guidance unchanged. All was not lost because the stock made a definitive move higher as Danaher management provided some initial thoughts on 2026 during the earnings call, pointing to further sales and earnings growth in the year ahead. In a note to clients Tuesday, analysts at KeyBanc Capital Markets said that based on Danaher’s preliminary 2026 guidance and Q3 results, they believe revenue could grow next year at a pace “not seen since 2022.” That goes along way in explaining the stock rally Tuesday. The share repurchase program that Danaher announced in September — good for up to 35 million shares, equal to roughly 5% of outstanding shares — should also provide a boost to earnings growth going forward. Sure, Danaher’s third-quarter results aren’t the main fuel for Tuesday’s rally, but they still offered plenty to like — sales, profitability, and cash flow all outpaced expectations — considering the operating backdrop. On the call, CEO Rainer Blair said that while pharmaceutical research-and-development spending was seeing a slight recovery, it remains below historical levels. The same is true for academic and government demand, Blair said, though demand was stable on a sequential basis. Why we own it Danaher is a best-in-class life sciences and diagnostics company, with a track record of finding new ways to grow and wisely reshuffling its business portfolio. Danaher’s products are used to develop and manufacture therapeutics, as well as diagnose diseases. With the growth in medical spending, the health-care market is an attractive place to be over the long term. Competitors : Sartorius and Thermo Fisher Scientific Portfolio weight: 2.78% Most recent buy: Sept. 25, 2025 Initiated : Jan. 3, 2022 Geographically, Blair said Danaher saw core revenue growth in the mid-single digits in developed markets, with North American sales growing mid-single digits and sales in Western Europe coming in relatively flat versus the year-ago period. In high-growth markets, sales were up low-single digits as a mid-single-digit decline in China offset growth elsewhere. Regarding China, specifically, Blair said growth in its biotechnology and life sciences segments was more than offset by declines in diagnostic sales resulting from volume-based procurement and reimbursement policy changes implemented over the past year. Those changes, the result of Beijing’s national strategy to control health-care costs, have been a thorn in the side of companies like Danaher and ex-Club holding Abbott Labs . Given Tuesday’s results, management’s improving execution on things within its control, and the initial outlook for 2026, we are reiterating our $240 price target. However, we are downgrading Danaher to our 2 rating, meaning wait for a pullback before buying more shares. This rating change is a reflection of the more-than-22% gain we’ve seen in Danaher since Sept. 25, the day we upgraded the stock to a buy-equivalent 1 rating and added to our position. Even though we like Danaher’s setup into 2026, it’s just not a part of our discipline to recommend a stock after a move of that size being made so quickly, even if it was off of very suppressed levels. Guidance For the full year 2025, Danaher said it now expects adjusted core revenue growth to be in the low-single-digit range versus 2024. Its previous guidance called for 3% growth, while the FactSet consensus stood at 2.5%. As a reminder, core revenue excludes currency fluctuations and M & A activity. Management reaffirmed its earnings per share target range of $7.70 to $7.80. The midpoint of $7.75 is a bit short of the $7.78 LSEG consensus estimate. Importantly, though, the full-year outlook was unchanged because the better-than-expected Q3 is being offset by more than $150 million of productivity initiatives in the final three months of the year. These cost-cutting efforts are setting up a better 2026. For its ongoing fourth quarter, Danaher expects to realize low-single-digit core revenue growth versus the year-ago period. That compares to a consensus estimate of about 5.8% growth, according to FactSet. Driving Danaher’s topline guidance are the assumptions that biotechnology delivers about 5% revenue growth; life sciences revenue grows at a low-single digit rate; and that diagnostics is largely flat on an annual basis. Meanwhile, adjusted operating profit margin is expected to be about 27%, versus a roughly 30% consensus estimate. The same productivity initiatives are weighing on the margin guidance, so it’s easy to look past this and into next year. Indeed, it was management’s initial commentary on 2026 that propelled the stock meaningfully higher during the earnings call. For the full year 2026, full-year, Danaher is expecting core revenue growth to be in the 3% to 6% range. On profitability, the team is looking to achieve adjusted operating profit expansion of more than a percentage point, leading to earnings per share growth in the high-single-digit range. That compares to the FactSet consensus estimate of just under 5% core revenue growth and earnings per share growth of about 9% for the full year 2026. Notably, management’s 2026 targets do not reflect any positive impact from capital allocation initiatives – such as share repurchases that serve to reduce the overall share count and, in turn, increase earnings per share results. Commentary Digging into the segment results, we’ll start with biotechnology, which serves pharma and biotech companies from both the early stages of drug development all the way to manufacturing. It also sells to researchers within academic settings, not just commercial drugmakers. The total segment core revenue growth came in at 6.5% versus the year-ago period. Discovery and medical, one of two divisions within the larger biotech segment, saw core revenue growth of low-single digits. Chief executive Blair said continued funding pressure on academic research customers resulted in lower protein research instrumentation sales versus the year-ago period, though this was more than offset by growth in medical and lab filtration sales. Bioprocessing core revenue was up high-single digits versus the year-ago period, driven by double-digit growth in sales of consumables. A year-over-year decline in equipment sales were a partial offset, though they were up on a sequential basis. While customers do have a healthy pipeline of planned projects, Blair said it has not yet “translated into equipment order growth as customers are awaiting additional clarity on the policy environment before finalizing their investment decisions.” As a result, the team expected equipment spending to remain “cautious” through year-end. For us at the Club, we think efforts by large pharmaceutical companies to bring manufacturing back to the U.S. to avoid President Donald Trump’s tariffs will be a tailwind in the years ahead. The longer-term opportunity in biologics, which are complex drugs derived from living organisms, is another tailwind. Biologics are used in treating cancer and autoimmune diseases, among others. “Underlying biologic demand has grown double digits annually over the last 10-plus years, and we expect strong demand growth to continue in 2025 and beyond,” Blair said. “This growth has been supported by a steady pace of new FDA drug approvals, building on several consecutive years with record-setting FDA approvals, as well as a continued shift in pharmaceutical pipelines towards biologics. In fact, more than two-thirds of the world’s top 100 drugs are projected to be biologics by 2030.” In Danaher’s life sciences segment, core revenue fell 1% year over year. In the company’s own words, this segment is used by customers “to study the basic building blocks of life, including DNA and RNA.” Products include microscopes used by surgeons and mass spectrometers used by molecular biologists. Core revenue for instrument sales was up slightly in the quarter. However, core revenue in the consumables business was down “primarily due to lower demand for plasmids and mRNA from two of our larger customers, as well as continued funding pressure across early-stage biotech and academic research,” Blair said. On the call, Blair offered additional insights into end market dynamics. “Demand from academic and government customers remained soft, but was stable sequentially,” he said. “We continued to see modest recovery in pharma spending, with revenue from these customers growing in the quarter. In China, moderate improvements in the funding environment led to increased activity levels, which contributed to revenue growth in the quarter.” Finally, Danaher’s diagnostics segment turned in core revenue growth of 3.5% year over year. Its testing equipment and other products like software are used in hospitals, doctors’ offices and laboratories to diagnose diseases. Overall clinical diagnostics core revenue increased low-single-digits versus the year-ago period, or a high single-digit rate when excluding China. The diagnostics business of its Beckman Coulter subsidiary realized mid-single-digit growth outside of China. For Beckman, this marked the fifth consecutive quarter of mid-single digit or better core growth outside of China. (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 will receive a trade alert before Jim makes a trade. 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