Danaher Exposure Increased In The FFJ Portfolio

At the time of my last Danaher (DHR) post, it had recently released its Q3 and YTD2022 results. I concluded that I plan to slowly increase my exposure given that its credit risk is improving and its current valuation and long-term outlook are attractive. I now disclose an increase in my Danaher exposure in the FFJ Portfolio with the January 6 purchase of 50 shares @ ~$246.18; my DHR exposure is now 335 shares.

DHR is slated to present at the 41st J.P. Morgan Healthcare Conference being held January 9 - 12. It is also scheduled to release its Q4 and FY2022 results and FY2023 outlook on January 24. I, therefore, intend to revisit DHR in the last week of January.

Credit Ratings

As noted in my prior post, DHR's credit risk is improving as borne out by the upgrade in its domestic senior unsecured long-term debt credit ratings in 2022.

  • Moody's: Upgraded to A3 from Baa1 on October 10, 2022;
  • S&P Global: Upgraded to A- from BBB+ on June 14, 2022.

Both ratings are at the bottom tier of the upper-medium investment-grade tier. This rating defines DHR as having a STRONG capacity to meet its financial commitments. However, DHR is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligors in higher-rated categories.

These ratings satisfy my conservative investment profile.

Dividends

Dividend and Dividend Yield

DHR distributes a quarterly dividend. On December 6, 2022, DHR announced that its Board approved a regular quarterly cash dividend of $0.25/share, payable on January 27 to holders of record on December 30, 2022. This marks the 4th consecutive quarterly dividend at this level. I envision a $0.03 - $0.04 increase in the quarterly dividend will be announced in the 2nd half of February.

When I wrote my July 21 post, shares were trading at ~$278 and the $0.25 quarterly dividend yield was ~0.36%.

Shares were trading at ~$243 when I wrote my October 21 post resulting in a ~0.41% dividend yield.

Using my most recent $246.18 purchase price and my expectation that the quarterly dividend will increase to ~$0.28 - ~$0.29, the forward dividend yield should remain at ~0.41%.

DHR is hyper-focused on capital allocation. The reason for the low dividend yield is that the Board feels superior long-term investor returns can be generated by retaining funds in the company.

Investors who rely on dividend income might pass on DHR because of this low dividend yield. However, investors should not fixate on dividend metrics. The focus should be on total potential long-term investment returns.

Valuation

When I wrote my October 21 post, DHR's forward-adjusted diluted PE levels were as follows based on earnings estimates from the brokers which cover DHR:

  • FY2022 - 21 brokers - mean of $10.53 and low/high of $10.34 - $10.77. Using the mean estimate, the forward adjusted diluted PE is ~23.1.
  • FY2023 - 22 brokers - mean of $10.61 and low/high of $10.03 - $11.35. Using the mean estimate, the forward adjusted diluted PE is ~23.
  • FY2024 - 15 brokers - mean of $11.61 and low/high of $10.85 - $13.15. Using the mean estimate, the forward adjusted diluted PE is ~21.

Using my $246.18 purchase price and current earnings estimates from the brokers which cover DHR, the forward-adjusted diluted PE levels are:

  • FY2022 - 24 brokers - mean of $10.56 and low/high of $10.43 - $10.77. Using the mean estimate, the forward adjusted diluted PE is ~23.3.
  • FY2023 - 25 brokers - mean of $10.40 and low/high of $9.50 - $11.00. Using the mean estimate, the forward adjusted diluted PE is ~23.7.
  • FY2024 - 20 brokers - mean of $11.42 and low/high of $10.85 - $12.60. Using the mean estimate, the forward adjusted diluted PE is ~21.6.

Please keep in mind that DHR intends to spin off its EAS segment in Q4 2023.

DHR's valuation is relatively similar to when I last reviewed the company.

Final Thoughts

When I completed my Mid 2022 Investment Holdings Review, DHR was not a Top 30 holding. Much has changed since then but I have yet to complete a more current review. I suspect, however, that it is still not a Top 30 holding.

I like DHR's long-term outlook and its exemplary capital allocation. With DHR having fallen out of favour with investors, I added to my exposure despite not having the FY2022 results and FY2023 outlook.

I wish you much success on your journey to financial freedom!

Note: Please send any feedback, corrections, or questions to [email protected].

Disclosure: I am long DHR.

Disclaimer: I do not know your circumstances and do not provide individualized advice or recommendations. I encourage you to make investment decisions by conducting your research and due diligence. Consult your financial advisor about your specific situation.

I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with any company mentioned in this article.