Danaher stock fails to rise on solid earnings — leading us to question what's next
C
CNBC Finance
5 min read
Danaher shares dropped on Wednesday because Wall Street was not giving the supplier of tools and equipment to drugmakers and hospitals credit for beating its rosy earnings guidance from earlier this month. Revenue for Danaher's fourth quarter 2025 rose 4.6% year over year to $6.84 billion, exceeding the LSEG-compiled analyst consensus estimate of nearly $6.81 billion. Adjusted earnings per share increased 4.2% to $2.23, also beating the LSEG estimate of $2.15. Why we own it Danaher is a best-in-class life sciences and diagnostics company, with a track record of finding new ways to grow and wisely reshuffling its business portfolio. Danaher's products are used to develop and manufacture therapeutics, as well as diagnose diseases. With the growth in medical spending, the health-care market is an attractive place to be over the long term. Competitors : Sartorius and Thermo Fisher Scientific Portfolio weight: 2.35% Most recent buy: Sept. 25, 2025 Initiated : Jan. 3, 2022 Bottom line Not only do invetors seem to be discounting the beat of the preannouncement numbers at the JPMorgan Healthcare Conference on Jan. 12, but they appear apprehensive about this year's outlook. While core revenue growth guidance for the full year was better-than-expected at the midpoint, segment guidance signals the lower end of the range is more likely. The higher end could come into play if there were an improvement in the life sciences end market; if increased biotech funding leads to more orders, and if things get better in China. With EPS guidance only in-line, we were not too surprised to see some profit takers step in on a stock that reported results near a 52-week high. Price action aside, we saw a lot to like. Fourth-quarter organic revenue came in ahead of expectations, as did the company's overall operating margin. While cash flow results did miss expectations, the misses were minor, not nearly enough to cause concern given the positive dynamics elsewhere, particularly in Bioprocessing, which is key to management's outlook on the year. Geographically, developed-market core revenue increased low single digit,s driven by a mid-single digit increase in Western Europe (North America was flat), while high growth markets increased mid-single digits as growth outside of China more than offset a low-single digit decline in China. Bioprocessing, which has been a key source of weakness for Danaher in recent years due to a lack of customer funding and inventory destocking, continued to improve. Core revenue increased high-single digits on the back of high-single digit growth in consumables and mid-single digit growth in equipment. While the quarter was solid and 2026 is shaping up to be better than 2025, the progress has been slower than we would like. For now, we are reiterating our 2 rating and $240-per-share price target. But as we move forward, we're going to think through whether this is a name we actually want to be in for the rest of 2026. During Wednesday's Morning Meeting, Jim Cramer said he's starting to think of Danaher as a "marginal position" in the portfolio, adding the Club has better stocks that he would like to own more of. DHR 1Y mountain Danaher 1 year Guidance For the current quarter â fiscal 2026 first quarter â management forecasts low-single digit core revenue growth as end market conditions remain in line with the fourth quarter. Management also guided for Danaher's adjusted operating margin to come in at 28.5%. By division, the team expected high-single digit core revenue growth in biotechnology, flat to a low-single digit decline in Life Sciences, and a low-single digit decline in Diagnostics. As for the full year, the team anticipates 3% to 6% core revenue growth, better than the 3.6% the Street was looking for, according to FactSet, as management expects continued improvement in end markets as we work through the year. Adjusted EPS were forecast to be between $8.35 and $8.50, right in line with the $8.42 LSEG-compiled consensus estimate. For the year, Biotechnology core revenue is expected to increase by about 6% on the back of a high-single digit increase in Bioprocessing, thanks to continued strength in consumables. Elsewhere, Diagnostics is expected to increase low-single digits as we move past the peak of headwinds in China (like volume-based procurement), and Life Sciences is anticipated to be unchanged for the year. (Jim Cramer's Charitable Trust is long DHR. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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