The S&P 500 has some massive names, such as Amazon and Microsoft. But some of the best US shares might be the ones that don’t get as much attention.
Enter Danaher (NYSE:DHR). Investors might have lost interest after five years of going nowhere, but this could be about to change.
A wonderful business
Danaher sells life sciences equipment and consumables. Its main focus is bioprocessing, which is roughly drug discovery and manufacturing.
Drug discovery can be a fast-moving and dynamic industry. So the company has to work hard to stay up with the latest developments. In recent years, this has involved big acquisitions at very high multiples. And this creates a risk that investors can’t afford to ignore.
Danaher’s core business though, is a very good one. It sells consumables that companies need to keep buying, which generates a lot of repeat business. Better yet, these are often specified in drug approval processes. That makes switching virtually impossible and puts the firm in a very strong position.
Numbers
All of this is great. But the company’s recent numbers are underwhelming to say the least and the stock’s gone nowhere since 2021 as a result. In the last five years, sales have grown 10% and free cash flow’s gone nowhere. And that doesn’t justify a price-to-earnings (P/E) ratio of 24.
In the time I’ve been looking at Danaher I’ve been a huge admirer of the business. But I haven’t been able to come to terms with its numbers. This however, might be about to change. The firm expects revenue growth to be between 3% and 6% and earnings per share (EPS) to increase by at least 7%.
If the business can get its growth back on track, then today’s share price might make sense. And there’s a strong reason why this might happen.
Time to shine
The slow growth of the last five years isn’t normal for Danaher by any means. It’s the result of a very specific issue the firm’s been battling with. Demand for bioprocessing equipment and consumables surged during Covid. But when the pandemic ended, customers had a lot of excess inventory.
Instead of buying more, drug companies elected to use up what they had. And that means Danaher’s sales and profits slowed dramatically.
This however, looks like it’s coming to an end. As a result, there’s a good chance growth is set to recover in the near future – as soon as this year. The upper end of the firm’s EPS guidance for 2026 implies a P/E ratio of 22. And that’s towards the low end of where it’s traded in the last 10 years.
High inventory levels have meant the stock’s been dead money for five years. But there are real signs this might be coming to an end.
An additional boost
Danaher is also set to benefit from one more boost. US research funding has been under pressure recently, but that’s set to change. Congressional appropriators have rejected the administration’s proposed cuts to the National Institutes of Health. That’s another positive sign.
Things are falling into place for Danaher after some tough years. So I think investors should consider buying the stock while it’s down.
