On May 13, I purchased shares of Danaher (DHR) at $54.44 in my own Trading Account. As part of my effort at trading transparency, I would like to share with you some of my own observations and things that made this stock attractive to me. Danaher closed at $53.99 on May 16, up $0.13 or 0.24% on the day.
According to the Yahoo Profile on Danaher, the company
... designs, manufactures, and markets professional, medical, industrial, commercial, and consumer products in the United States and internationally. It operates in four segments: Professional Instrumentation, Medical Technologies, Industrial Technologies, and Tools and Components.
Looking at the latest quarterly report, Danaher reported first quarter results on April 21. Earnings came in at $429.4 million or $0.63/share compared with $300.2 million or $0.45/share the prior year. From my perspective, besides the solid earnings report, the company exceeded expectations of $0.57/share according to Thomson Reluters. In addition, the company also beat expectations by reporting revenue of $3.35 billion, an 11% increase over the prior year.
In that same report, the company optimistically raised guidance for analysts and increased its estimate of 2011 profits to $2.65 to $2.75/share up from prior range of $2.55 to $2.70. As reported, analysts are currently looking for $2.69/share.
An earnings report that reveals solid results that beat expectations and finds management raising guidance is about my equivalent for an earnings nirvana. What else could an investor want from a news announcement?
Reviewing the Morningstar.com financials on Danaher, we can see that revenue has grown from $9.6 billion in 2006 to $13.2 billion in 2010 and $13.5 billion in the trailing 12 months (TTM). Earnings have increased from $1.74/share in 2006 to $2.64/share in 2010 and $2.80/share in the TTM. Both revenue and earnings dipped between 2008 and 2009 and have rebounded since that time. Outstanding shares have increased during this time from 651 million in 2006 to 683 million in 2010 and 685 million in the TTM.
Morningstar reports that Danaher has $5.7 billion in Total Current Assets as of Dec. 2010, compared with a total $3.3 billion in Total Current Liabilities yielding a healthy Current Ratio of 1.73. Free Cash Flow has increased from $1.4 billion in 2006 to $1.87 billion in 2010 and $1.90 billion in the TTM.
In terms of valuation, reviewing the Yahoo "Key Statistics" on DHR, we find that the company is a large cap stock with a market capitalization of $35.85 billion. According to Yahoo, the company has a trailing p/e of 19.15, a forward (fye Dec 31, 2012) p/e of 17.42, and a PEG ratio (5-yr expected) of 1.22. From my perspective, a PEG of under 1.5 demonstrates reasonable valuation.
The company has 664 million shares outstanding with a float of 547 million. As of Apr. 29, there were 10.9 million shares out short, slightly ahead of my own three-day rule for short interest ratio, suggesting some bullish potential of these short shares.
The company pays a small dividend of $0.08, yielding 0.2%. There is a lot of room for dividend increases, as this represents a payout ratio of only 3%. The company last had a stock split June 14, 2010, when it declared a 2:1 stock split.
In terms of technical performance, we can examine a Point & Figure chart from Stockcharts.com. This stock has shown tremendous strength since breaking out in May 2003 at the $17 level and climbing into the mid-$40s. After pulling back to the $25 range in 2008, the stock once again broke out in March 2009 and has climbed to its current levels after peaking in April 2011 in the $56 range.
In conclusion, Danaher represents an investment opportunity reflecting the continued American economic recovery. Even though the stock has already performed quite well this year, valuation-wise the company is selling at a PEG of just over 1.2, and just reported revenue and earnings that exceeded expectations while raising guidance for the near future. All of these facts and especially the solid earnings results encouraged me to add this stock to my own portfolio.