Graham-Style Analysis of Danaher (DHR)

Danaher does not have the profile of a defensive investment based on the requirements of Ben Graham. The Farm & Heavy Construction Machinery firm may nonetheless be of interest to more risk-oriented investors who have a solid thesis on the company's future growth. At Market Inference, we remain agnostic as to such further developments, and prefer to use a company's past track record as the bellwether for future potential gains.

Danaher Is Probably Overvalued

Graham devised the below equation to give investors a quick way of determining whether a stock is trading at a fair multiple of its earnings and its assets:

√(22.5 * 6 year average earnings per share (5.74) * 6 year average book value per share (70.057) = $121.43

At today's price of $212.13 per share, Danaher is now trading 74.7% above the maximum price that Graham would have wanted to pay for the stock.

Even though the stock does not trade at an attractive multiple, it might still meet some of the other criteria for quality stocks that Graham listed in Chapter 14 of The Intelligent Investor.

Impressive Revenues, Consistent Profitability, and a Growing Dividend Imply Value

Danaher’s average sales revenue over the last 6 years has been $33.16 Billion, so by Graham’s standards the stock has sufficient revenues to make it worthy of investment. When published in 1972, Graham’s threshold was $100 million in average sales, which would be the equivalent of around a half million dollars today.

Ben Graham believed that a margin of safety could be obtained by investing only in companies with consistently positive retained earnings. Retained earnings represent the cumulative net earnings or (deficit) left to equity holders after dividends have been paid out. Danaher had positive retained earnings from 2008 to 2022 with an average of $20.54 Billion over this period.

Ben Graham would also require a cumulative growth of Earnings Per Share of at least 30% over the last ten years.To determine Danaher's EPS growth over time, we will average out its EPS for 2007, 2008, and 2009, which were $4.19, $1.98, and $0.40 respectively. This gives us an average of $2.19 for the period of 2007 to 2009. Next, we compare this value with the average EPS reported in 2020, 2021, and 2022, which were $4.89, $8.61, and $9.66, for an average of $7.72. Now we see that Danaher's EPS growth was 252.51% during this period, which satisfies Ben Graham's requirement.

Negative Current Asset to Liabilities Balance and a Decent Current Ratio

Graham sought companies with extremely low debt levels compared to their assets. For one, he expected their current ratio to be over 2 and their long term debt to net current asset ratio to be near, or ideally under, under 1. Danaher fails on both counts with a current ratio of 1.9 and a debt to net current asset ratio of -1.0.


According to Graham's analysis, Danaher is likely a company of average quality, which does not offer a significant enough margin of safety for a risk averse investor.

2018-02-21 2019-02-21 2020-02-21 2021-02-25 2022-02-23 2023-02-22
Revenue (MM) $18,330 $17,049 $17,911 $22,284 $29,453 $31,471
Gross Margins 56.0% 56.0% 56.0% 56.0% 61.0% 60.0%
Operating Margins 16% 18% 18% 19% 25% 28%
Net Margins 14.0% 16.0% 17.0% 16.0% 22.0% 23.0%
Net Income (MM) $2,492 $2,651 $3,008 $3,646 $6,433 $7,209
Net Interest Expense (MM) -$155 -$128 $31 -$204 -$227 -$170
Depreciation & Amort. (MM) -$1,238 -$1,178 -$1,189 -$1,775 -$2,168 -$2,222
Earnings Per Share $3.53 $3.73 $4.05 $4.88 $8.62 $9.64
EPS Growth n/a 5.67% 8.58% 20.49% 76.64% 11.83%
Diluted Shares (MM) 706 710 726 719 727 737
Free Cash Flow (MM) $4,065 $4,600 $4,575 $6,171 $9,613 $9,662
Capital Expenditures (MM) -$587 -$578 -$623 $37 -$1,255 -$1,143
Net Current Assets (MM) -$13,431 -$12,512 -$6,204 -$22,582 -$26,359 -$18,377
Long Term Debt (MM) $10,327 $9,688 $21,517 $21,193 $22,168 $19,086
Net Debt / EBITDA 2.34 2.11 0.41 2.53 2.03 1.25
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.