Danaher Corporation (NYSE:DHR) is currently trading at $225.88, at approximately 92.1% of its 52-week high of $248.32. With the stock price up 68.7% in the last year, investors are worried that the company is getting too expensive. So, is Danaher Corporation overvalued? In this article, we’ll discuss Danaher Corporation’s valuation using different valuation models.
One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.
Considering Danaher Corporation’s latest twelve months revenue/share of $28.71 and using the company’s 5-year average price to sales of 4.78x as a benchmark, we have a fair value of $137.33, which is -39.2% lower than the current price.
With no surprise, we can see that Danaher Corporation’s price to sales of 8.0x is much higher than its 5-year average of 4.8x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.
Absolute Valuation: Danaher Corporation DCF Analysis
Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.
So, let’s analyze Danaher Corporation with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 11.9%, an average EBITDA margin forecast of 30.5%, a discount rate of 8.5%, and a terminal EBITDA multiple of 23.3x, we get a fair value of $237.6.
So, Is Danaher Corporation Overvalued?
Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.
The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.
According to the estimate, Danaher Corporation’s fair value is $162.95, representing a -29.0% downside from the current price. Below are the fair value estimates for each model.
Company’s Profile: Danaher Corporation
Danaher Corporation designs, manufactures, and markets professional, medical, industrial, and commercial products and services worldwide. The company operates through three segments; Life Sciences, Diagnostics, and Environmental & Applied Solutions. The Life Sciences segment provides mass spectrometers; cellular analysis, lab automation, and centrifugation instruments; microscopes; and genomics consumables. This segment also offers filtration, separation, and purification technologies to the biopharmaceutical, food and beverage, medical, aerospace, microelectronics, and general industrial sectors. The Diagnostics segment provides chemistry, immunoassay, microbiology, and automation systems, as well as hematology and molecular diagnostics products. This segment offers analytical instruments, reagents, consumables, software, and services for hospitals, physicians’ offices, reference laboratories, and other critical care settings. The Environmental & Applied Solutions segment offers instrumentation, consumables, software, services, and disinfection systems to analyze, treat, and manage ultra-pure, potable, industrial, waste, ground, source, and ocean water in residential, commercial, industrial, and natural resource applications. This segment also provides equipment, software, services, and consumables for various color and appearance management, packaging design and quality management, packaging converting, printing, marking, coding, and traceability applications for consumer, pharmaceutical, and industrial products. The company was formerly known as Diversified Mortgage Investors, Inc. and changed its name to Danaher Corporation in 1984. Danaher Corporation was founded in 1969 and is headquartered in Washington, the District of Columbia.