Danaher Vs Fortive Stock

The decision to invest in Danaher Corporation vs. Fortive Corporation is particularly challenging, because the two companies were once a single entity.

In July 2016, Fortive [NYSE: FTV] separated from Danaher, so that the newly independent organizations could focus on their core businesses.

But is this a similar case of Ebay Vs Paypal where the spin-off (Paypal) goes on to roaring success? Let’s dive in…

A Brief History of Danaher Corporation and Fortive Corporation

The original Danaher Corporation [NYSE: DHR] started as a Real Estate Investment Trust (REIT) in 1969. However, in 1984 it was re-christened as Danaher after a tributary of the South Fork Flat Head River in Montana.

Today, Steven Rales is Chairman of the Board and Mitchell Rales is Chairman of the Executive Committee, but in the early 1980s, the two brothers were simply smart businessmen with a vision for transforming manufacturing.

The Rales decided to recreate the manufacturing industry with a strong emphasis on customer satisfaction and continuous improvement.

Danaher [NYSE: DHR] was one of the first North American businesses to embrace the Japanese management method of kaizen (later made famous by Toyota) or continuous improvement, and this concept has since become an integral part of the manufacturing industry.

The brothers’ methods were wildly successful.

In the 30 years between Danaher’s launch and the Fortive Corporation split, each of the two built personal fortunes of approximately $4 billion. They grew Danaher [NYSE: DHR] into a Fortune 200 Company with annual revenue of $20 billion and a market cap of $62 billion.

Their secret was to acquire a variety of manufacturing companies that weren’t especially notable, then turn them around through application of their signature Danaher Business System.

Over time, the conglomerate amassed a collection of businesses in life sciences, water quality, diagnostics, dental, product ID, test and measurement, telematics, automation, and retail fueling.

In 2015, Danaher [NYSE: DHR] announced the split.

One company would focus on more traditional manufacturing business, while the other would focus on science and technology growth opportunities.

The separation was complete in July 2016, and Fortive [NYSE: FTV] began trading on the New York Stock Exchange as an independent entity.

Is Danaher A Buy?

Danaher Corporation continues to wow investors and analysts. In the first half of 2019, shares rose 38.6 percent.

Leadership is one of this company’s greatest strengths, as executives show no fear when it comes to purchasing businesses that fit a specific profile.

The company is working on an acquisition of GE’s biopharma business, which is expected to be final in the fourth quarter of this year.

Equally as important, management is willing and able to divest divisions that are not meeting business needs. For example, in 2019 the company will let go of its dental segment, which will become an independent company called Envista Holdings.

Danaher is in a strong position to capitalize on its historical success.

While it can continue to grow through mergers and acquisitions, completed transactions create plenty of room for organic growth as well. This offers good insurance against improving economic conditions, as Danaher will not necessarily be forced to pay premium prices for acquisitions in order to continue its expansion.

Investors who choose Danaher shares are increasing their exposure to life sciences. In its current form, Danaher generates approximately 80 percent of its revenue from life sciences, dental end markets, and diagnostics.

Should You Invest in Fortive Stock?

From an investment perspective, there are significant differences between Danaher [NYSE: DHR] and Fortive [NYSE: FTV].

While Danaher is primarily involved in life sciences, Fortive [NYSE: FTV] has assembled a collection of more traditional industrial businesses. For better or for worse, this results in more exposure to economic growth cycles.

This could bring unexpected good news for Fortive shareholders, if the federal government moves forward with plans for protecting and growing US manufacturing and increasing spending on infrastructure.

The downside is that because Fortive [NYSE: FTV] is at the start of its merger and acquisitions journey, upswings in the market could add financial pressure.

Purchases will be more costly, pulling from bottom line profits. However, so far that hasn’t been an issue.

On April 1st, Fortive completed its acquisition of Johnson & Johnson’s Advanced Sterilization Products. The transaction was fairly complex from the perspective of separating ASP from its parent organization, yet Fortive was able to manage the project in less than 10 months.

In the first quarter of 2019, Fortive’s adjusted net earnings were $245.6 million – an increase of 6.7 percent over the previous year. Sales also grew by 6.7 percent to a strong $1.6 billion.

Danaher Vs Fortive Stock: The Bottom Line

While their business focus is different, Danaher [NYSE: DHR] and Fortive [NYSE: FTV] rely on similar strategies.

Both companies are pursuing growth through merger and acquisition, and both companies are adept at selecting less-than-spectacular businesses to acquire, then turning them around through proven management methods and a customer-centric approach. From this perspective, either is a solid buy.

The true difference between the companies is their core business focus. Investors pursuing a position in life sciences may prefer Danaher [NYSE: DHR], while those interested in traditional manufacturing may find Fortive [NYSE: FTV] more suitable.

Many portfolios contain stock from both of these companies, because there is natural diversification between the two without sacrificing strong leadership.

For more information on investing in industrial, manufacturing, and life sciences businesses, visit Financhill – where many of the world’s smartest investors turn for expert guidance.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.