According to the data released by the Labor Department last Friday, 263,000 jobs were added during November, which is higher than expected. More importantly, for the three months through November, average hourly earnings rose at a 5.8% annualized rate, up from an initially reported 3.9% annualized rate for the three months ended October.
This aggravates the Fed’s concern about wage and price increases creating a vicious feedback loop, which economists call a wage-price spiral. Hence, despite Fed Chair Jerome Powell signaling slower interest rate hikes from this month onward, there are concerns that policy rates could end up above 5% in 2023.
Such development threatens to take the wind out of the sails of the economy and the markets with fresh bouts of pullbacks and downward volatility. However, such subdued market sentiments present the ideal opportunity to buy fundamentally strong stocks Danaher Corporation (DHR) and Verizon Communications Inc. (VZ), trading at discounts to their peers.
Danaher Corporation (DHR)
DHR is a designer, manufacturer, and marketer of professional, medical, industrial, and commercial products and services. The company’s segments include Life Sciences; Diagnostics; and Environmental & Applied Solutions.
On September 14, DHR announced its intention to separate its Environmental & Applied Solutions segment to create an independent, publicly traded company. The transaction is intended to be tax-free to Danaher shareholders and is expected to be completed in the fourth quarter of 2023.
The new company will be comprised of Danaher's Water Quality and Product Identification businesses and will be referred to as "EAS" until it is named at a later date. DHR expects its new subsidiary to be advantaged as a standalone company with greater opportunities to pursue high-impact organic and inorganic investments.
On November 10, DHR announced its strategic partnership with Duke University to form its first Danaher Beacon for Gene Therapy Innovation. The program invests in product innovation to advance external R&D strategies focusing on genomic medicines, precision diagnostics, next-generation biomanufacturing, human systems, and data sciences.
This partnership holds the promise of contributing to the long-term growth of the DHR.
For the third quarter of the fiscal year ended September 30, 2022, DHR’s sales increased 6% year-over-year to $7.66 billion. During the same period, the company’s operating profit increased 53.9% year-over-year to $2.02 billion, while net earnings increased 35.8% year-over-year to $1.57 billion. As a result, its quarterly adjusted EPS increased 7.1% year-over-year to $2.56.
Analysts expect DHR’s revenue for the fiscal year ending December 2022 to come in at $30.78 billion, indicating a 4.5% increase year-over-year. The company’s EPS is also expected to grow 4.7% year-over-year to $10.52 in the same period. Moreover, DHR has also surpassed the consensus EPS estimates in each of the trailing four quarters, which is commendable.
In terms of forward P/E, DHR is currently trading at 26.07x, 8.3% lower than its 5-year average. The stock’s forward EV/EBITDA multiple of 20.40 is 5.5% below its 5-year average of 21.58.
The stock has gained 8.8% over the past month but dipped 13.2% year-to-date to close the last trading session at $274.23.
DHR’s fundamental strength and solid prospects are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.
DHR also has an A grade in Sentiment and a B for Quality, Value, and Stability. DHR is ranked #3 of 52 stocks in the Medical – Diagnostics/Research industry.
In addition to the ratings discussed above, additional ratings for DHR’s Momentum and Growth can be found here.
Verizon Communications Inc. (VZ)
VZ offers communication, information, and entertainment products and services to consumers, businesses, and governmental agencies. The company provides wireless and wireline communications services and products in the United States through Consumer Group and Business Group segments.
On December 1, VZ declared its quarterly dividend of $0.65 per share, payable to shareholders on February 1, 2023. The company pays $2.61 annually as dividends, which translates to a yield of 6.84% at the current price, better than the 4-year average dividend yield of 4.62%. Dividend payouts have grown for 18 consecutive years.
On November 30, VZ announced its partnership with Wipro Limited (WIT) to accelerate the network modernization and cloud transformation journey for businesses. This will enable VZ to help WIT transition its customers from legacy cycles of deploying hardware, applications, and services to an automated, self-healing, and highly secure network service environment.
On October 5, VZ bagged a new Enterprise Infrastructure Solutions (EIS) contract, worth $1.58 billion over the next ten years, to modernize the global communications infrastructure and provide IT services for each of the Department of State’s (DOS) U.S. embassies, consulates, and other key locations totaling to around 260 around the globe.
During the third quarter of the fiscal year 2022 ended September 30, VZ’s total operating revenues grew 4% year-over-year to $34.2 billion. Wireless service revenue growth and higher wireless equipment revenue more than offset wireline declines and the net impact of merger and acquisition (M&A) activity in 2021.
During the same period, VZ’s adjusted EBITDA and net income came in at $12.2 billion and $5 billion, respectively. As a result, the company’s adjusted quarterly EPS came in at $1.32.
For fiscal 2022 (ending December 31, 2022), VZ’s revenue is expected to increase 2.5% year-over-year to $136.89 billion. Moreover, the company has topped the consensus EPS estimates in three of the trailing four quarters.
In terms of forward P/E, VZ is currently trading at 7.35x, 52.8% lower than the industry average of 15.56x. The stock’s forward EV/Sales multiple of 2.47 is 10.9% lower than its 5-year average of 2.77. Also, its forward Price/Sales multiple of 1.17 compares favorably with the industry average of 1.28.
The stock has gained 2.3% over the past month but dipped 27.2% year-to-date to close the last trading session at $38.18.
VZ’s overall POWR Rating of B equates to a Buy in our proprietary rating system. It also has a grade of B for Growth and Stability.
VZ is ranked #3 of 19 stocks in the Telecom – Domestic industry.
Click here to see the additional ratings of VZ for Value, Momentum, Sentiment, and Quality.
DHR shares were trading at $267.45 per share on Monday afternoon, down $6.78 (-2.47%). Year-to-date, DHR has declined -18.48%, versus a -15.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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