Danaher (DHR)

Diversified science and technology company Danaher (NYSE:DHR) met Wall Streets revenue expectations in Q4 CY2025, with sales up 4.6% year on year to $6.84 billion. Its non-GAAP profit of $2.23 per share was 1.8% above analysts’ consensus estimates.

Company Overview

Born from a real estate investment trust that transformed into a manufacturing powerhouse, Danaher (NYSE:DHR) is a global science and technology company that provides specialized equipment, software, and services for biotechnology, life sciences, and diagnostics.

The life sciences subsector specializing in research tools and consumables enables scientific discoveries across academia, biotechnology, and pharmaceuticals. These firms supply a wide range of essential laboratory products, ensuring a recurring revenue stream through repeat purchases and replenishment. Their business models benefit from strong customer loyalty, a diversified product portfolio, and exposure to both the research and clinical markets. However, challenges include high R&D investment to maintain technological leadership, pricing pressures from budget-conscious institutions, and vulnerability to fluctuations in research funding cycles. Looking ahead, this subsector stands to benefit from tailwinds such as growing demand for tools supporting emerging fields like synthetic biology and personalized medicine. There is also a rise in automation and AI-driven solutions in laboratories that could create new opportunities to sell tools and consumables. Nevertheless, headwinds exist. These companies tend to be at the mercy of supply chain disruptions and sensitivity to macroeconomic conditions that impact funding for research initiatives.

Danaher competes with several major life sciences and medical technology companies including Thermo Fisher Scientific (NYSE:TMO), Abbott Laboratories (NYSE:ABT), Siemens Healthineers (ETR:SHL), Roche (SWX:ROG), and Becton Dickinson (NYSE:BDX). In specific segments, it also faces competition from specialized players like Illumina (NASDAQ:ILMN) in genomics and Bio-Rad Laboratories (NYSE:BIO) in life sciences research.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $24.57 billion in revenue over the past 12 months, Danaher sports economies of scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Danaher’s sales grew at a tepid 2% compounded annual growth rate over the last five years. This was below our standards and is a tough starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Danaher’s annualized revenue growth of 1.4% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Danaher’s organic revenue was flat. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Danaher grew its revenue by 4.6% year on year, and its $6.84 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.8% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Danaher has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 24.7%.

Analyzing the trend in its profitability, Danaher’s operating margin decreased by 11 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 3.7 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q4, Danaher generated an operating margin profit margin of 22%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Danaher’s EPS grew at an unimpressive 4.4% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Danaher’s earnings to better understand the drivers of its performance. A five-year view shows that Danaher has repurchased its stock, shrinking its share count by 1.9%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q4, Danaher reported adjusted EPS of $2.23, up from $2.14 in the same quarter last year. This print beat analysts’ estimates by 1.8%. Over the next 12 months, Wall Street expects Danaher’s full-year EPS of $7.80 to grow 8.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Danaher has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 24.6% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Danaher’s margin dropped by 7.1 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Danaher’s free cash flow clocked in at $1.75 billion in Q4, equivalent to a 25.5% margin. This result was good as its margin was 2.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Danaher’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 7.8%, slightly better than typical healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Danaher’s ROIC averaged 4 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Danaher roughly met analysts’ organic revenue expectations this quarter, leading to in line revenue. EPS beat slightly. Zooming out, we think this was a fine quarter without too many surprises good or bad. The stock remained flat at $238 immediately following the results.

Updated: January 28, 2026 at 6:13 AM EST

Are you wondering whether to buy Danaher or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Danaher isn’t a terrible business, but it doesn’t pass our quality test. To begin with, its revenue growth was uninspiring over the last five years. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its declining operating margin shows the business has become less efficient. On top of that, its flat organic revenue disappointed.

Danaher’s P/E ratio based on the next 12 months is 27.9x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $263.05 on the company (compared to the current share price of $238).