Danaher Corp. (NYSE:DHR)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

Intrinsic Stock Value (Valuation Summary)

Danaher Corp., dividends per share (DPS) forecast

US\$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 8.67%
0 DPS01 0.72
1 DPS1 0.78 = 0.72 × (1 + 8.28%) 0.72
2 DPS2 0.84 = 0.78 × (1 + 8.31%) 0.72
3 DPS3 0.91 = 0.84 × (1 + 8.34%) 0.71
4 DPS4 0.99 = 0.91 × (1 + 8.37%) 0.71
5 DPS5 1.07 = 0.99 × (1 + 8.39%) 0.71
5 Terminal value (TV5) 418.59 = 1.07 × (1 + 8.39%) ÷ (8.67%8.39%) 276.17
Intrinsic value of Danaher Corp. common stock (per share) \$279.74
Current share price \$280.45

Based on: 10-K (reporting date: 2020-12-31).

1 DPS0 = Sum of the last year dividends per share of Danaher Corp. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF 2.08% Expected rate of return on market portfolio2 E(RM) 11.60% Systematic risk of Danaher Corp. common stock βDHR 0.69 Required rate of return on Danaher Corp. common stock3 rDHR 8.67%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

3 rDHR = RF + βDHR [E(RM) – RF]
= 2.08% + 0.69 [11.60%2.08%]
= 8.67%

Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Danaher Corp., PRAT model

Average Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017 Dec 31, 2016
Selected Financial Data (US\$ in millions)
Common stock dividends declared 509  484  449  390  394
Mandatory Convertible Preferred Stock dividends declared 136  68  —  —  —
Net earnings 3,646  3,008  2,651  2,492  2,554
Sales 22,284  17,911  19,893  18,330  16,882
Total assets 76,161  62,082  47,833  46,649  45,295
Total Danaher stockholders’ equity 39,766  30,271  28,214  26,358  23,003
Financial Ratios
Retention rate1 0.85 0.84 0.83 0.84 0.85
Profit margin2 15.75% 16.41% 13.33% 13.60% 15.13%
Asset turnover3 0.29 0.29 0.42 0.39 0.37
Financial leverage4 1.92 2.05 1.70 1.77 1.97
Averages
Retention rate 0.84
Profit margin 14.84%
Asset turnover 0.35
Financial leverage 1.88

Dividend growth rate (g)5 8.28%

Based on: 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31).

2020 Calculations

1 Retention rate = (Net earnings – Common stock dividends declared – Mandatory Convertible Preferred Stock dividends declared) ÷ (Net earnings – Mandatory Convertible Preferred Stock dividends declared)
= (3,646509136) ÷ (3,646136)
= 0.85

2 Profit margin = 100 × (Net earnings – Mandatory Convertible Preferred Stock dividends declared) ÷ Sales
= 100 × (3,646136) ÷ 22,284
= 15.75%

3 Asset turnover = Sales ÷ Total assets
= 22,284 ÷ 76,161
= 0.29

4 Financial leverage = Total assets ÷ Total Danaher stockholders’ equity
= 76,161 ÷ 39,766
= 1.92

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.84 × 14.84% × 0.35 × 1.88
= 8.28%

Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$280.45 × 8.67%\$0.72) ÷ (\$280.45 + \$0.72)
= 8.39%

where:
P0 = current price of share of Danaher Corp. common stock
D0 = the last year dividends per share of Danaher Corp. common stock
r = required rate of return on Danaher Corp. common stock

Dividend growth rate (g) forecast

Danaher Corp., H-model

Year Value gt
1 g1 8.28%
2 g2 8.31%
3 g3 8.34%
4 g4 8.37%
5 and thereafter g5 8.39%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 8.28% + (8.39%8.28%) × (2 – 1) ÷ (5 – 1)
= 8.31%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 8.28% + (8.39%8.28%) × (3 – 1) ÷ (5 – 1)
= 8.34%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 8.28% + (8.39%8.28%) × (4 – 1) ÷ (5 – 1)
= 8.37%