Sunday, October 26, 2014

Why Has Danaher Stock Underperformed the Market in 2014?

Long-term investors in Danaher Corp. (NYSE: DHR  ) have grown used to watching their stock outperform the index in rising markets, with the stock price gaining around 200% over the past 10 years versus an 81% gain for the S&P 500. However, this year's underperformance of nearly 6% versus the S&P 500 must have them wondering whether the company has lost its touch. Why has Danaher started to underperform, and is it likely to continue?

Why Danaher Corp. has underperformed
In a nutshell, there are three reasons the stock has underperformed this year:

  • There are questions about the company's ability or opportunity to make suitable acquisitions -- a key part of its business strategy
  • CEO Larry Culp, whose 11-year tenure is partly responsible for the recent outperformance, announced in April that he would be leaving the company. 
  • Two of the company's higher-margin businesses -- communications (test and measurement) and dental consumables -- have underperformed expectations.

Danaher Corp.'s existential angst
Companies' reputations define how investors look at them. In Danaher's case, the company has long been seen as an excellently run conglomerate that uses its substantive cash flow generation to make earnings-enhancing acquisitions.


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