Company Danaher Ticker NYSE: DHR (US) Sector Life sciences and diagnostics
Danaher designs, manufactures and markets products and services in the sectors of life sciences, diagnostics testing and environmental sciences.
The end market exposure is very attractive given the structural growth and resiliency in an economic downturn. The business has very predictable cash flows given a high proportion of products sold are consumables that act as recurring revenue. The company has one of the best management teams and investment philosophies we have seen with their “Danaher Business Systems” (DBS) framework. Rather than grow margins by cost-cutting, the DBS process invests in innovation and aims to produce more innovative and therefore higher priced products to drive margin expansion.
Danaher’s recent acquisition of Cytiva (GE’s Biopharma business) has significantly increased Danaher’s exposure to life sciences and importantly their exposure to biopharma manufacturing. Even before COVID-19 this was an area of structural growth as the pharmaceutical industry was shifting from small molecule drugs to biologics drugs, as biologic drugs are more targeted therapeutics that come with higher efficacy and reduced side-effects. The arrival of COVID-19 gave the segment an added growth driver – COVID vaccine and therapeutic development and production.
Danaher is the global leader in supplying instruments and consumables to the biopharma manufacturing industry. We think COVID-19 could add an additional $20bn in revenue opportunity for the market. (see chart below). The rush to develop and build increased capacity for COVID-19 vaccines led to sales growth of >20% for Danaher’s operating businesses in this segment, up from a run-rate of high single digits. Investing in Danaher is like investing in the picks and shovel makers in the gold rush, rather than trying to predict which gold miner will strike gold. In this instance, the gold rush is towards cures for ailments such as COVID-19.
However, Danaher is an active acquirer, and this involves risks around integration that can lead to lower profitability or write-downs, should the company make an error in its acquisition strategy.
Given Danaher’s strong track record of creating value from acquisitions and the pipeline of growth ahead from both testing and biopharma manufacturing equipment demand brought about by COVID-19, we see many strong years of growth ahead for Danaher.
Danaher’s sales opportunities
This information has been prepared and provided by Munro Partners. To the extent that includes any financial product advice, the advice is of a general nature only and does not take into account any individual’s objectives, financial situation or particular needs. Before making an investment decision an individual should assess whether it meets their own needs and consult a financial advisor. This stock pick was published on 15 October 2020 and is subject to change.
