Why This Upgraded Blue-Chip Stock Is a Buy Today

We recently upgraded our economic moat rating for Danaher to wide from narrow. An acquisition-focused strategy has helped the company become a key player in scientific instruments and consumables in the life sciences and diagnostics industries. Results in 2024 were stifled by a postpandemic reset and China challenges, and the stock languished. But we expect organic revenue to rebound, rising 7% compounded annually through 2028. The stock of this wide-moat company looks cheap, trading 14% beneath our fair value estimate. Danaher appears on Morningstar’s Best Companies to Own list for 2025 and is among our 3 Top Blue-Chip Stocks to Buy and Hold for 2025.

Through its Danaher Business System, Danaher aims for continuous improvement of its scientific technology portfolio by seeking out attractive markets and then making acquisitions to enter or expand within those fields. It also divests assets that it no longer sees as core. After acquisitions, Danaher looks to accelerate core growth at the purchased companies by making research and development and marketing-related investments. It also implements lean manufacturing principles and administrative cost controls to boost operating margins. Its strategic moves have pushed Danaher into attractive end markets with strong growth prospects and sticky, recurring revenue streams.

Key Morningstar Metrics for Danaher

• Fair Value Estimate: $285
• Star Rating: 4 Stars
• Economic Moat Rating: Wide
• Uncertainty Rating: Medium

Economic Moat Rating

We believe Danaher has a wide moat based on intangible assets and switching costs. Acquisitions and divestitures have cut into the company’s GAAP returns on invested capital including goodwill in recent years. But when we adjust the invested capital base for the market value delivered to shareholders through spinoffs like Fortive and Veralto, the ROIC story looks better. Also, ROICs look likely to improve as margins increase after the 2023-24 reset in target markets and after recent acquisitions are pushed through the Danaher Business System, which tends to boost revenue growth and margins through continuous improvement initiatives. In addition, ROICs may rise as intangible assets from acquisitions like Cytiva are amortized in the invested capital base. We expect the attractive fundamental qualities of Danaher’s current businesses to help deliver economic profitability for the long run.

Read more about Danaher’s moat rating.

Fair Value Estimate for Danaher Stock

Our fair value estimate is $285 per share. After a tough postpandemic reset period in 2023-24, when sales for Danaher’s tools deflated and China challenges mounted, we expect a rebound in demand. After 2024, we expect organic revenue to rise about 7% compounded annually through 2028, similar to the long-term demand trends that we expect in Danaher’s key end markets. We expect biotechnology growth to rebound to the high single digits through 2028. We expect life sciences to also rise in the high single digits throughout our forecast period. The diagnostics business looks set to grow in the midsingle digits in the long run. With operating leverage-related margin expansion, we expect adjusted earnings per share growth of around 13% compounded annually for 2024-28, settling in the low double digits in the longer term.

Read more about Danaher’s fair value estimate.

Risk and Uncertainty

Demand for Danaher’s life sciences products is influenced by biopharma and academic R&D budgets, which are largely uncorrelated to economic cycles but have been challenged in the postpandemic environment. Also, Danaher sells diagnostics systems and related consumables to hospital and other labs, where capital budgets can fall prey to economic cycles. Danaher’s acquisition strategy creates integration-related risks. In addition, if it overpays for a target, it may not be able to generate economic profits eventually. If the company does not quickly deleverage after debt-funded transactions, acquisitions could eventually harm its financial flexibility.

Read more about Danaher’s risk and uncertainty.

Danaher Bulls Say

• The Danaher Business System focuses on continuous improvement, including the acceleration of core growth and margin expansion through marketing initiatives and innovation, which appears positive for the company’s long-term prospects.
• Danaher’s shift to healthcare markets has created a less cyclical business in attractive markets with high barriers to entry and impressive recurring consumables revenue streams.
• Danaher has plenty of opportunities to consolidate and improve performance in its targeted life sciences and diagnostics end markets.

Danaher Bears Say

• Danaher continues to hunt for acquisitions in life sciences and diagnostics, which could constrain ROICs including goodwill if it makes acquisitions at unattractive prices and is not able to integrate them as successfully as in the past.
• Danaher faces significant competition in its target niches and must remain dedicated to ongoing innovation to remain relevant, which is not guaranteed.
• The 2023-24 reset period challenged growth rates in Danaher’s target markets, and a rebound is not a certainty.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Jan. 22, 2025.