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Why Danaher Is Relatively Immune from Growth Concerns in China

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Nov. 20 2020, Updated 1:12 p.m. ET

Danaher at the Morgan Stanley Laguna Conference

We covered most of the updates on Danaher (DHR) in September under our business overview and mergers and acquisition overview of Danaher’s Cepheid (CPHD) acquisition. In this series, we’ll cover the company’s position in high-growth regions, which Danaher discussed during the Morgan Stanley (MS) Laguna Conference.

Close to 28% of the company’s revenues, which totaled $4.6 billion in 2015, came from high-growth regions. China is Danaher’s most important international market, with revenues from the region expected to tip ~$2 billion this year.

Among the other major markets, Latin America and Mexico are expected to yield $800 million in sales. The Middle East and the Eastern European region, which includes Russia, are expected to bring $500 million each.

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Danaher’s areas of growth in China

Organically, Danaher (DGR) has grown at a compound annual growth rate (or CAGR) of roughly 10% in China over the last five years. Approximately 50% of the company’s revenues in China are derived from its Diagnostics segment.

Danaher’s growth in China is largely being driven by consumer demand for improved and premium healthcare facilities, which the country can afford after years of rapid economic growth. The expansion of privatized healthcare has also added to the demand.

In the Environmental segment, the company’s water treatment and monitoring capabilities fit right into the investment priority of the Chinese government to provide access to clean drinking water. Additionally, the Packaging ID business is being supported by the focus on automation and increased productivity.

All these factors relate to either defensive sectors of the economy or are in tune with secular trends in the industry. Therefore, the new Danaher is less susceptible to pressures on economic growth in China.

Additionally, the integration of Cepheid could be a growth driver as Danaher leverages its infrastructure to advance Cepheid’s business, which currently has a very small base in China. So, Danaher’s case in China is one of being in the right markets.

In the industrial (XLI) and aerospace sectors, investors can check out our pre-earnings series on Idex Corporation (IEX), Lennox International (LII), Lockheed Martin (LMT), and Textron (TXT).

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