Danaher Shares May Be Fairly Valued, But Its Business Model Is Best In Class

| About: Danaher Corporation (DHR)

As part of our process, we employ a discounted cash-flow model to arrive at a fair value estimate for every company within our equity coverage universe.

In Danaher's (NYSE:DHR) case, we think the shares are fairly valued at just over $40. In the spirit of transparency, our DCF valuation model template can be found here. We make this template available to investors, and it can be re-used to value any other operating firm in your portfolio (click to enlarge images):

Source: Valuentum Securities, Inc.

Valuation Summary

Our discounted cash flow model indicates that Danaher's shares are worth between $34.00 - $50.00 each. The margin of safety around our fair value estimate is driven by the firm's LOW ValueRisk™ rating, which is derived from the historical volatility of key valuation drivers. The estimated fair value of $42 per share represents a price-to-earnings (P/E) ratio of about 16 times last year's earnings and an implied EV/EBITDA multiple of about 11.8 times last year's EBITDA.

Source: Valuentum Securities, Inc.

Our model reflects a compound annual revenue growth rate of 12.6% during the next five years, a pace that is higher than the firm's 3-year historical compound annual growth rate of 6.2%. Our model reflects a 5-year projected average operating margin of 15.2%, which is above Danaher 's trailing 3-year average. Beyond year 5, our valuation model assumes free cash flow will grow at an annual rate of 1.8% for the next 15 years and 3% in perpetuity. For Danaher, our model uses a 9.3% weighted average cost of capital to discount future free cash flows.

We'd consider adding Danaher to our Best Ideas portfolio, if it became relatively more attractive than our existing long ideas. For investors interested in viewing our full equity research report on Danaher, please click here.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.