Discovering Danaher (DHR)
May 22, 2009
Acquisitions are the primary driver of growth at Danaher Corp (DHR), a manufacturing conglomerate. In the past five years, 14.5% of DHR’s sales growth has been due to acquisitions, some 75% of its total sales growth according to Wikinvest. Eighteen companies were acquired in 2008, with Tektronix the largest to date ($2.8 B). S&P reports 12 acquisitions in 2007 and 11 in 2006.
DHR was this month’s Online Stock Study at the Better Investing website. These studies complete a SSG in about one hour with online participants making the judgments by consensus. This one was led by Gary Ball, an experienced volunteer educator, retired investment professional and member of BI’s Board of Directors. Thanks Gary for an excellent SSG study.
Company Background:
Danaher manufactures mostly high-tech equipment and operates in four segments: Professional Instrumentation (38% of 2008 Sales), Medial Technologies (26%), Industrial Technologies (26%), and Tools and Components (10%). Tektronix, before its acquisition, was the market leader in high precision oscilloscopes and DHR also makes Craftsman hand tools sold by Sears.
Danaher’s strategy is to buy underperforming companies and make them run more efficiently. Morningstar explains that DHR acquires companies that possess proprietary technology and a strong market position. It focuses on niche markets that permit economies of scale and then uses its Danaher Business System to improve profitability and cash flow, and will divest if the desired return on investment is not achieved.
The Bob Adams one-click spreadsheet analysis of DHR’s 2008 Annual Report shows a total score of 63 out of 100 with 11 Bullish results (good things such as decreasing accounts receivable, inventories, and debt) and 5 Bearish results (not-so-good things such as ROE is deemed inadequate). You can get this free, super-duper spreadsheet and a description of its many features by clicking here.
Here’s a table comparing the Consensus SSG to my two SSGs and to Take Stock. The only judgment that’s different between Armin-1 and Armin-2 is my estimate of EPS growth.
Danaher Corp (DHR) | Consensus SSG | Armin-1 | Armin-2 | Take Stock |
Date | 5-5-09 | 5-8-09 | Same | 5-9-09 |
Data | S&P | Same | Same | Hemscott- |
Price | $61.60 | $61.38 | Same | $61.38 |
52 week High & Low Price | $85.00 & $47.20 | Same & Same | Same & Same | n/a |
Project Growth From End of | Last Quarter | Last Quarter | Same | Last Fiscal Year |
Sales Growth | 5.00% | 9.00% | Same | 14.90% |
EPS Growth | 5.50% | 8.00% | 11.00% | 06.10% |
High PE | 17.1 | 18.0 | Same | 23.0 |
High EPS | $5.30 | $5.97 | $6.84 | $5.28 |
High Price | $90.60 ($4.40/sh < VL’s low end est) | $107.50 | $123.10 | $121.37 |
Value Line Estimated High Price = $95-125 @ $54.42 on 4-24-09 |
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Low PE | 11.2 (lowest in last 5 years) | 11.2 (Same) | Same | 16.2 |
Low EPS | $3.47 | $4.23 | Same | $3.92 |
Low Price | $47.20 (recent severe low price) | $47.20 (recent severe low price) | Same | $63.50 (exceeds the current price) |
Upside/Down | 2.0 | 3.3 | 4.4 | impossible to calculate |
Total Return | 8.2% | 12.0% | 15.1% | 17.6% |
SSG Buy Under | n/a | $53.78 | $68.40 | $61.22 |
RV/PRV (no outs) | 77.6/73.4 | 77.0/71.4 | Same/69.5 | n/a |
Quality | n/a | S&P = A+ (best) | Same | TS = 2.1(unacceptable) |
PTPM – 5 yr ave | 15.2% trend even | Same & Same | Same & Same | 14.9% trend n/a |
ROE – 5 yr ave with Ending Equity | 14.9% trend down | Same & Same | Same & Same | n/a |
ROE – 5 yr ave with Starting Equity | n/a | 18.0% trend down | Same & Same | 17.8% trend n/a |
Debt to Equity – 5 yr ave | n/a | 27.4% trend down | Same & Same | n/a |
All 5 judgments by the Consensus SSG are discussed below so let me know, in the poll at the end, if you think this post is too long. The Consensus had a few surprises which are indicated in blue highlighting so they’re easier to spot.
CONSENSUS SSG:
Future Sales Growth:
– Gary gave the group four choices to estimate future Sales growth: 17.00% (last 10 year average), 15.00% (last 5 year average), 5.00% (Gary’s estimate), and 3.50% (VL’s estimate). Another choice for all of the judgments was “None of the Above” which I won’t report.
– Value Line’s 3.50% estimate was actually for Sales/Share as VL makes no estimate of Sales growth. However, based on VL dollar estimates, we can imply a Sales growth rate of 1.83% (traditional method) to 3.81% (VL’s method).
– Gary’s 5.00% estimate was based on YahooFinance’s Sales growth estimates for this year and next which he extended for another three years.
– The Consensus choice was 5.00%, Gary’s estimate.
Future EPS Growth:
– The group also was offered four choices to estimate DHR’s future EPS growth: 11.40% (YahooFinance’s long-term estimate for the next 5 years), 5.50% (VL’s estimate), 5.50% (from the Preferred Procedure), and 5.00% (Gary’s estimate).
– Gary did not check other long-term EPS estimates which I discuss under Armin’s SSG.
– The 5.50% Preferred Procedure estimate was based on: 5.00% Sales growth, 14.6% PTPM (down from the 5 year average of 15.2%), 21.0% Tax Rate (VL’s estimate), and 320 M Shares (VL’s estimate). I stopped using the PP because it involves too many estimates and way too much guesswork; see Pondering the Preferred Procedure.
– Gary’s 5.00% EPS estimate was based on YahooFinance’s EPS growth estimates for this year and next which he extended for another three years.
– The Consensus choice was 5.00%, Gary’s estimate. However, the Consensus SSG inexplicably uses 5.50%.
Forecast High PE:
– Four choices were offered to estimate the Forecast High PE: 22.8 (the 5 year historical average), 22.3 (the 3 year average), 20.9 (from 2008, the lowest High PE in the last 5 years), and 17.1 (based on a PEG of 1.5).
– The 1.5 PEG was applied to 11.40% future EPS, based on YahooFinance’s estimate, This slideshow could not be started. Try refreshing the page or viewing it in another browser.