Here's Why the Slump in Danaher Stock This Week Looks Like a Buying Opportunity
Key Points
Management raised full-year guidance, but nearly all of it hinges on an acquisition.
The reduction in full-year sales growth guidance in biotechnology is likely due to shipment lumpiness.
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Shareholders in biotechnology, life sciences, and diagnostics solutions company Danaher (NYSE: DHR) have had an interesting week. Their stock crashed early in the week on the release of its second-quarter earnings, only to recover somewhat through the week and start Friday morning having declined 12.1% on the week.
Danaher mixed earnings report
Investors can be forgiven for wondering why the stock declined after the company's second-quarter earnings beat estimates and management raised its full-year earnings per share (EPS) guidance to $8.45-$8.60 from a $8.35-$8.55 previously.
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The answer lies in the fact that $0.07 to $0.08 of the increase in guidance comes from the earlier-than-expected acquisition of the medical technology company Masimo. In addition, Danaher reduced its full-year core sales growth expectations in its highest margin business, biotechnology.
|
Full-Year Core Sales Growth Guidance |
At April |
At July |
Second Quarter Adjusted Operating Profit Margin |
|---|---|---|---|
|
Biotechnology |
6% |
Up mid-single-digit |
41% |
|
Life Sciences |
Up slightly |
3%-4% |
21% |
|
Diagnostics |
Up low-single-digits |
Up slightly |
24.5% |
|
Total Company |
3%-6% |
Up mid-single-digit |
27.1% |
Data source: Company presentations. Table by the author.
What the guidance change means
It's not a huge change in overall company sales growth expectations. Still, the reduction in growth expectations for the biotechnology could impact full-year profit margin expectations.
The disappointing news in biotechnology came down to consumables sales coming in "below our expectations as a few large shipments for programs at our commercial customers moved out of the quarter. To give you some additional color, this was a shift in shipment timing at a few large commercial drug manufacturers for molecules that were specced into" according to CEO Rainer Blair on the earnings call.
Image source: Getty Images.
Analysts were quick to ask why the shipments wouldn't simply move to the third and fourth quarters, with Blair outlining that a few chromatography resin shipments had moved out of the year.
There's a good reason to believe the shipments will proceed, as shipments can be lumpy in biotechnology. The sell-off appears to be a significant overreaction to an otherwise positive report. If you like the stock long-term, then it could be a good time to pick some up.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Danaher. The Motley Fool has a disclosure policy.
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