Goldman Sachs Downgrades Danaher, Says There's A Shift Towards Pharmaceutical Market

Goldman Sachs notes that Danaher Corp DHR has been one of its top picks during 2023 and has been one of the best-performing names in Goldman's sector YTD driven by a recovery in their diagnostics business, focus on higher growth end markets, and perception of higher quality which became attractive in a more volatile environment. 

However, at the current valuation, Goldman's analyst says more attractive opportunities in the Tools space will likely benefit from a potential recovery in 2024, hence downgrading Danaher to Neutral from Buy. 

Exposure to the pharmaceutical and biotechnology sector has traditionally been seen as a promising avenue for growth among established tool companies. 

While the belief in its long-term growth potential remains, Goldman Sachs highlights that the biopharmaceutical market has exhibited cyclical patterns, with discernible fluctuations in growth rates since 2012, as per GS Tools Tracker.

With Danaher spinning off its industrial segment, the company is tilting more towards pharmaceuticals and biotechnology in terms of overall revenue. 

This strategic move enhances their alignment with the pharmaceutical market's peaks and valleys, offering a potentially higher average growth rate. 

However, it also means greater vulnerability to market fluctuations and reduced diversification in case the fundamental dynamics of this sector deteriorate.

Wednesday, Danaher completed its acquisition of Abcam for $24.00 per share.

Price Action: DHR shares are down 0.78% at $219.04 on the last check Thursday.