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Cowen Upgrades Danaher to Outperform

NEW YORK (GenomeWeb) – In a note to investors Friday, Cowen analyst Doug Schenkel upgraded Danaher's stock to an Outperform rating from Market Perform, and raised its price target to $95 from $85.

Danaher's recent $4 billion acquisition of Cepheid, and its $700 million acquisition of privately held consumables manufacturer Phenomenex, will likely drive core revenue growth to 5 percent by 2020, Schenkel wrote. Given the value these deals add to Danaher, Schenkel further noted, it's likely that the company will beat consensus estimates in 2016, 2017, and 2018.

"We have consistently believed that Danaher has an attractive outlook via its significant margin expansion opportunity and ability to drive upside to estimates through M&A," Schenkel wrote. "That said, we initiated at Market Perform this past August primarily due to Danaher's premium valuation to Tools peers and because shares looked fairly valued." However, he added, since Cowen's initial outlook on Danaher, "we have gained incremental conviction in the outlook for revenue growth acceleration via recent M&A (Cepheid and Phenomenex) and our biopharma survey which boost confidence in the outlook for Pall," which Danaher bought in August 2015.

The recent acquisitions also increase Danaher's opportunity for margin expansion, Schenkel noted. And Cepheid and Phenomenex will, in turn, benefit from being run under Danaher's business system.

In October, Danaher reported that third quarter revenues rose 18 percent to $4.13 billion, including a 60 percent increase in recorded revenues from its life science segment, driven mostly by Danaher's acquisition of Pall. On a call with analysts to discuss the earnings report, Danaher President and CEO Thomas Joyce said he and his executive team are positioning Danaher for strong growth through M&A, noting that the company expects to achieve a double-digit return on investment within five years from its acquisition of Phenomenex. He added the Cepheid acquisition will accelerate growth and further differentiate Danaher's offerings.

The company's shares were up 1 percent at $80.91 in afternoon trading on the New York Stock Exchange.