RBC Downgrades Danaher, Says Defensive Portfolio 'Less Compelling To Own'

Science and technology company Danaher Corporation DHR boasts a high-quality and defensive portfolio that has become "less compelling to own" ahead of a cyclical recovery into 2021, according to RBC Capital Markets.

The Analyst: Deane Dray downgraded Danaher from Outperform to Sector Perform with a price target lowered from $273 to $234.

The Thesis: The bullish case for Danaher's stock was justified during the early days of the COVID-19 pandemic, as the company's life sciences products "would be in the spotlight," Dray said in the downgrade note.

The thesis played out, as Danaher's COVID-19 diagnostic testing devices made it part of the "flight-to-quality trade," the analyst said. 

Months later, a "soft downgrade" of Danaher's stock is warranted, as investors priced in Danaher's COVID-19 testing success story and the role it can play within the global vaccine initiative, he said. 

Related Link: Benzinga's Top Upgrades, Downgrades For November 25, 2020

Looking forward, expectations for a rebound in the economy are a bigger catalyst for lower-quality and higher-beta stocks versus higher-quality and lower-beta names like Danaher, Dray said. 

A separation of Danaher's business isn't a strong enough catalyst for the stock, since 80% of its total revenue comes from the Life Sciences and Diagnostics units, the analyst said. 

This means the separation of the company's noncore Water Quality and Product ID platforms is unlikely to materially drive the stock higher at this point, according to RBC. 

DHR Price Action: Shares of Danaher were down 0.48% at $217.22 ahead of the close Wednesday. 

Photo courtesy of Danaher.