Tags: Danaher | Warren | Buffett | DHR

Danaher: The Kind of Company Warren Buffett Would Adore

By    |   Thursday, 26 July 2012 05:28 PM

Danaher (DHR) is the kind of company Warren Buffett would adore: large, productive and essentially anonymous. It has its fingers in dozens of industries and sells its products across the planet, making it diversified by design and less prone to narrow business cycles. Analysts like its free cash flow and commitment to share buybacks, too.

Danaher designs, manufactures and markets professional, medical, industrial and commercial products and services. It has research and development, manufacturing, sales, distribution, service and administrative facilities located in more than 50 countries.

Its business consists of five segments: test and measurement; environmental; life sciences and diagnostics; dental; and industrial technologies. Sales in 2011 by geographic destination were: North America, 46 percent (including 42 percent in the United States); Europe, 28 percent; Asia/Australia, 20 percent; and other regions, 6 percent.

“We remain active and optimistic on the M&A front. Through the first six months, we've deployed nearly $1 billion of capital on eight acquisitions, primarily in our Industrial, Environmental and Test & Measurement segments,” Danaher CEO and President H. Lawrence Culp told analysts in a recent call.

“Even taking into account the capital we deployed on these transactions, we still expect to have more than $5 billion of M&A capacity over the next two years.”

Danaher has a market cap of $35.53 billion in a sector, industrial conglomerates, where the average company size is $6.87 billion. Its trailing 12-month P/E ratio is 16.59 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.1, compared to 1.09 for the sector.

Its projected earnings per share growth for the coming year is 12.04 percent, compared to a sector average of 11.67 percent.

Premium trade

Analysts are generally positive on DHR, with buy or outperform calls from Citigroup Investment Research, Longbow, Morgan Stanley, and Jefferies.

“Based on several valuation measures, the shares trade at a premium to some peers, which we believe reflects DHR's wider net margins and faster growth. Its earnings quality appears high to us, as we expect free cash flow in 2012 to exceed net income,” Standard & Poor’s Equity Research analysts wrote on July 24, rating the stock a hold.

“We view positively DHR's 10 million share buyback program. Although we consider its balance sheet to be strong, we expect the company's acquisition pace to slow, as it works to replenish its liquidity.”

Danaher next reports on Oct. 18.

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Thursday, 26 July 2012 05:28 PM
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