Danaher Q2: Inventory Overhang, But Low Expectations Limit Downside

Core Viewpoint - Danaher Corporation is expected to face a challenging quarter due to inventory destocking in the bioprocessing market, but the stock has already corrected significantly, indicating that most negatives are priced in. A medium to long-term recovery is anticipated starting in FY25, maintaining a buy rating on the stock [4]. Company Performance - The stock experienced a high single-digit percentage increase from April to mid-June but has since returned to previous levels [4]. - Earnings report is scheduled for July 23, with expectations of a downbeat quarter due to industry commentary and regulatory delays [4]. Market Conditions - The bioprocessing market has seen inventory destocking as companies reduce excess inventory built during COVID-19 supply chain constraints [4]. - Peers in the bioprocessing sector, such as Avantor and Sartorius AG, have provided negative commentary, indicating no signs of market recovery yet [4]. - Citigroup downgraded Avantor, citing concerns over elevated customer inventory levels [4]. Future Outlook - Expectations for DHR's earnings are low, suggesting limited downside risk [4]. - The second half of the year may shift investor focus towards 2025, with potential positive commentary expected from management regarding future outlook [4]. - The Chinese government's plans for equipment upgrades could benefit DHR's sales in 2H 2024 and beyond [4]. - A potential reversal in the interest rate cycle may encourage customer investments in equipment, supporting DHR's demand [4]. Legislative Impact - The BioSecure Act, if passed, could provide a competitive advantage to U.S. Medtech/Healthcare Equipment firms, benefiting DHR [4]. Financial Estimates - Consensus EPS estimates show growth accelerating from FY25, with projected EPS of 8.67 in Dec 2025, reflecting a 14.03% YoY growth [5]. - Revenue estimates indicate a decline in Dec 2024 to 23.84 billion, followed by growth to 25.82 billion in Dec 2025, representing an 8.29% YoY increase [6]. - The stock has traded at a historical forward P/E of 29.75x, and while current P/E is slightly higher, it is trading at a discount based on FY25 and FY26 EPS estimates [6].