Behind Danaher’s 4Q16 Revenue Estimates

Danaher’s revenue estimates

Danaher (DHR) reported ~$5.9 billion in consolidated revenue in 4Q15. Analysts expect DHR to report $4.5 billion in 4Q16 revenue, nearly a 23% fall on a YoY (year-over-year) basis.

Behind Danaher’s 4Q16 Revenue Estimates

As mentioned earlier in this series, DHR spun off its industrial-focused Fortive and Industrial Technologies segments into an independent public company known as Fortive (FTV) on July 2, 2016.

According to DHR’s restated financial statements, its revenue after accounting for revenue from its discontinued operations, namely its FTV spin-off, came in at $4.3 billion in 4Q15. As a result, its expected 4Q16 revenue is ~5% higher than its restated revenue reported for the comparable period in 2015.

Impact of Cepheid addition

On November 4, 2016, Danaher announced that it had completed its acquisition of Cepheid (CPHD). According to the company’s press release, Copper Merger Sub, an indirect, wholly owned subsidiary of Danaher, merged into Cepheid. As a result, Cepheid became an indirect, wholly owned subsidiary of Danaher.

Cepheid produces molecular diagnostic systems used in clinical settings to diagnose life-threatening diseases such as HIV, hepatitis, tuberculosis, and certain types of cancer. Cepheid has the largest installed base of any molecular diagnostic (IHF) platform. Its broad test menu delivers systems for institutions and hospitals (XLV) of any sophistication.

The integration of Cepheid into Danaher’s Diagnostics segment is expected to add value to DHR’s top line growth in 4Q16. Cepheid’s revenue has risen at a compound annual growth rate of 14.7% since 2011. Danaher says that it’s identified $100 million in cost synergies and another $100 million in revenue over the next five years with Cepheid’s acquisition.

Key ETFs

Investors interested in trading in the healthcare space can look into the Vanguard Health Care ETF (VHT) and the Health Care Select Sector SPDR ETF (XLV).

Major holdings in XLV include Johnson & Johnson (JNJ) with a weight of 11.8% and Pfizer (PFE) with a weight of 7.6%.

Now let’s look at Danaher’s margin estimates.