Danaher Stock Is Soaring. Earnings Surged on Covid-Test Success. -- Barrons.com
Danaher produced strongly upside second-quarter results, and shares are up a lot in early Thursday trading. The company's Covid-testing business was an unexpected surprise.
On Thursday, Danaher (ticker: DHR) reported adjusted earnings per share of $2.76 on sales of $7.8 billion. Wall Street was looking for EPS of $2.35 and sales of $7.3 billion.
Investors are impressed. Shares are up 8% in Thursday trading. The S&P 500 and Dow Jones Industrial Average are down 0.4% and 0.5%, respectively.
An 8% move following earnings is a big deal for Danaher. The company is a stable, highly regarded conglomerate serving industrial and healthcare end-markets. The company has met or exceeded Wall Street earnings estimates for the past 29 quarters and the average move, up or down, for Danaher stock following earnings is only about 2%.
Covid appears to be the reason for the outsize reaction. "Covdi-19 testing contributed an additional [1.5%] to core revenue growth in the quarter," said CEO Rainer Blair on the company's conference call.
Total sales at Danaher grew more than 7% year over year in the second quarter. Wall Street was expected less than 2% growth.
Danhaer's overall Covid-related revenue is expected to fall this year. "The spread of highly transmissible Covid variants and greater incidence of other respiratory infections...led to both higher testing volume and a preference for our 4-in-1 combination test," added Rainer. That test is used in professional settings.
RBC analyst Deane Dray called the quarter impressive and noted the 4-in-1 combo was a big reason for the upside surprise.
The reason for the big reaction, however, is more than just the surprise or Covid-testing sales. Investors appear to feel better about holding stock in higher-quality companies that can still grow sales in a weak economy. Danaher expects to grow sales at a high-single-digit percentage rate in 2022.
Dray rates Danaher stock at Buy with a price target of $301. Overall, 86% of analysts covering Danaher stock rate share Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The average analyst price target is about $312 a share, about 13% higher than recent levels.
Year to date, Danaher stock is down about 16%, similar to the drop in the S&P 500.