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Goldman Sachs Resumes Coverage of Danaher with Neutral Rating

NEW YORK (GenomeWeb News) – Goldman Sachs today resumed coverage of Danaher with a Neutral rating and a 12-month price target of $57.

In a research note analyst Isaac Ro said that the Washington-based conglomerate will need to rejuvenate its M&A pipeline to spark growth in the midst of few near-term catalysts for organic growth.

Ro said that Danaher has seen "compelling growth" on a revenue, free cash flow, and EPS basis during the past decade, driven by its Danaher Business System — a business process and philosophy that focuses on cutting waste and improving productivity — and an effective deployment of capital.

However, the company had no significant acquisitions in 2012, "and we believe a reacceleration in deal flow will be required to drive share outperformance, particularly as the company gets bigger," Ro said.

He also noted that Danaher's organic growth and global gross domestic product are "highly correlated" but said that Goldman Sachs' economics team forecasts only a "modest recovery" in global GDP for Fiscal Years 2012 to 2015. Furthermore, Danaher has diversified toward less cyclical end-markets such as Life Sciences and Diagnostics, and Dental, which should translate to "a more muted recovery following a recovery in global GDP growth."

Next week Danaher will hold its annual investor meeting, during which Ro anticipates the company will provide guidance for 2013. Some of its competitors, such as Agilent Technologies, has guided to low-single-digit organic growth for next year, and Danaher is likely to guide similarly.

Ro expects Danaher to grow at 5 percent organically in 2013 and sees "little opportunity for upside surprise." The company's current valuation, he added, "implies a balanced risk/reward."

Ro also provided some thoughts on the Beckman Coulter business, acquired by Danaher in June 2011, in his note.

In its third-quarter earnings call Danaher said that Beckman Coulter is on track to meet its target of $250 million in cost savings for 2012, and Ro said that Danaher continues to make progress streamlining operations and improving customer relations. However, he cautioned that in order for Beckman to grow, a new product cycle is needed as overall testing volumes in the US and Europe are flat.

While the commercialization of the company's long-awaited UniCel DxN molecular diagnostics platform has been slowed by product development issues, it is on track to launch next year, Ro said.

"While details are scant on how the technology will be differentiated, we believe this platform, in addition to successful relaunch of the troponin test, will be key to reaccelerating revenue growth within" Beckman, he said.

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