This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Danaher Looks Like a Relative Bargain

NEW YORK (TheStreet) -- With shares of General Electric (GE), Honeywell (HON) and ABB (ABB) all trading at or near their 52-week highs, there certainly aren't any bargains left in the industrial sector these days. But in the case of Danaher (DHR), whose stock is far from cheap, this may still be one of the few bargains left.

Danaher stock, which has just received an upgrade from a Goldman Sachs analyst with an $88 price target, is not going to sneak up on anyone. After all, this well-run industrial conglomerate has been a popular pick on the Street for years.

Even so, while the stock has already gained 36% on the year and continues to trade in tandem with GE and Honeywell, management has shown that it has bigger ambitions. And with the company's strong history of return on invested capital, not to mention its reputation as a strategic acquirer, I believe this is a company to watch heading into 2014.

Now, I won't tell you that Danaher has had an exceptional year. Despite the sector's performance, which has been (at best) uninspiring due to weakness in the industrial environment, it's a marvel that Danaher has posted any gains at all.

That said, the encouraging aspect about this business is that Danaher has never disappointed investors from the standpoint of business segment profits or organic revenue growth. And this recent quarter, which produced 6% and 9% growth for revenue and profits, respectively, was no different.

[Read: Four Biotech 'Surprise' Stocks for 2014]

Segment wise, growth was led by the environmental and life sciences business, which delivered year-over-year growth of 10.5%. Of which 6% was organic. As with GE and Dover (DOV), which have built their breadth of end-market exposure via mergers and acquisitions (M&A), organic growth, which measure a company's performance while excluding M&A deals, is an important metric.

To that end, Danaher's 6% organic growth stands up favorably to that of Dover, which I happen to like. Likewise, with 4.5% organic growth (10% total) in the environmental business, Danaher continues to prove skeptics wrong that this segment, which provides products to treat water and air quality, could be a viable business.

That's not the case, however, for the test and measurement business, which continues to struggle with revenue declining in the quarter by 0.5%. That segment, which provides electronic measurement instruments and monitoring, took a slight dip on a sequential basis.

I won't pretend the continued weakness in the test business is not an ongoing concern. I believe there are opportunities in this area for management to reverse course and generate value. Plus, with a little over $8 billion in total assets, Danaher has the resources to shop for growth. This is the nature of the business.

[Read: 5 Holiday Shopping Budgeting Tips]

In that regard, there are large medtech companies, like Abbott Labs (ABT) and to a lesser extent Johnson & Johnson (JNJ), which have medical device businesses that have underperformed this year. And I believe for the right price, they could be persuaded to unload them.

In the meantime, investors have to be mindful that even with the sluggishness in the test business, Danaher still grew operating income by 9%. And to say nothing about operating margin expansion and cash-flow growth.

Just to keep things in context, I'm not suggesting that this was a blowout quarter. But it has to be appreciated in the sense that this is still a pretty dreary industrial environment. I don't need to make excuses for a stock that just received an upgrade and is trading near its 52-week high.

Nevertheless, given management's reputation as a savvy acquirer, not to mention the company's strong returns on invested capital, these shares look undervalued by 25% heading into 2014.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,943.81 +28.74 0.17%
S&P 500 1,967.57 +2.89 0.15%
NASDAQ 4,415.49 +19.2860 0.44%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs