With a market capitalization of $233.38 billion, Danaher Corporation (DHR) designs, manufactures and markets professional, medical, industrial, and commercial products and services. DHR shares have gained 45.2% in price over the past year and 45.6% year-to-date to close yesterday's trading session at $326.58. The stock is trading above its 50-day and 200-day moving averages.

The Washington, D.C.-based maker of medical and diagnostic equipment reported solid revenue growth in its last reported quarter driven by high demand for its COVID-19 testing and treatment products. Its increased sales of its Life Sciences products, which are used primarily to study genes, proteins, metabolites, and cells, helped the company deliver robust revenue growth for the quarter. Its revenues increased 23% year-over-year to $7.23 billion, with 20.5% non-GAAP core revenue growth. "We continued to invest for growth across our businesses, expanding production capacity and accelerating innovation initiatives," stated Rainer M. Blair, President and Chief Executive Officer.

However, the company's revenue growth may slow in the coming quarters as the demand for COVID-19 related products declines because more than 50% of the U.S population is now vaccinated against the disease. Wall Street analysts expect DHR to deliver single-digit revenue growth over the next year. Furthermore, the company's EPS is expected to decline 3.6% year-over-year in the next quarter, ending March 2022. That said, the COVID-19 omicron variant is spreading faster than its predecessors, and the resurgence of cases of COVID-19 may bode well for DHR with continuing demand for its products. However, uncertainty around the stock's prospects reigns.

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Here is what could shape DHR's performance in the near term:

Stretched Valuation

In terms of forward P/E, DHR is currently trading at 38.95x, which is 24.6% higher than the 31.27x industry average. Also, its 8.93 forward EV/Sales ratio is 48.2% higher than the 6.03 industry average. DHR's non-GAAP forward PEG is 50.9% higher than the 1.92x industry average.

Profitable

DHR's 20.97% net income margin is substantially higher than the negative 1.46% industry average. Also, its 26.96% EBIT margin is 1,034.7% higher than the 2.38% industry average.

Moreover, DHR's 15.05%, 7.13%, and 7.34% respective ROE, ROA, and ROTC compare with the negative 35.09%, 22.17%, and 18.35% industry averages.

Solid Third-Quarter Earnings Report

DHR's gross profit increased 35.1% year-over-year to $4.36 billion in its fiscal third quarter, ended October 1. Its operating profit stood at $1.31 billion, up 20.3% from the same period last year. And its net earnings came in at $1.16 billion, indicating an increase of 31.1% year-over-year. The company's adjusted EPS increased 39% year-over-year to $2.39.

POWR Ratings Reflect Uncertainty

DHR has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a B grade for Growth, which is consistent with its stable rise in financials in its last reported quarter.

DHR has a C grade for Momentum. This is justified because the stock has gained marginally (0.02%) over the past month.

Of  167 stocks in the Medical - Devices & Equipment industry, DHR is ranked #44.

Beyond what I have stated above, one can also view DHR's grades for Quality, Sentiment, Value, and Stability here.

View the top-rated stocks in the Medical - Devices & Equipment industry here.

Bottom Line

DHR's increased sales of its COVID-19 related products helped it deliver solid topline growth. However, the company's near-term prospects look uncertain due to the uncertain impacts of the new omicron variant. Analysts expect its EPS to decline in the next quarter. Furthermore, the stock seems overvalued at its current price level. So, we think it could be wise to wait for its prospects to stabilize before investing in the stock.

How Does Danaher Corporation (DHR) Stack Up Against its Peers?

While DHR has an overall POWR Rating of C, one might want to consider looking at its industry peers, OLYMPUS CORPORATION (OCPNY), Fonar Corporation (FONR), and Natus Medical Incorporated (NTUS), which have an A (Strong Buy) rating.

Click here to checkout our Healthcare Sector Report 

DHR shares were unchanged in premarket trading Thursday. Year-to-date, DHR has gained 47.47%, versus a 29.41% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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