Danaher reported Q3 earnings today, and after several quarters with little positive news on the horizon, this might have finally changed. My idea in this article is to briefly go over the quarterly numbers (which were fine) and then focus on the 2026 commentary, which was undoubtedly the highlight this quarter. Let’s first start with the market’s reaction: it was good. This is a rarity for Danaher, but I feel that the additional visibility provided by management is finally making it easier for the market to see that the corner is turning and that the cycle is finally over (albeit we can’t confirm this yet):
Let’s begin with an overview of the quarter. Here’s the summary table:
I don’t think there’s much to comment on these numbers because three things have been a constant for Danaher this year, and these were no different in Q3:
Continued recovery in bioprocessing (already growing high single digits)
Weak equipment sales across pretty much all segments
LifeSciences still weak due to several headwinds (like academia and biotech funding), and Diagnostics weak due partly to China (Volume Based Procurement)
Things at the consolidated level are getting moderately better thanks to #1, but #2 and #3 are putting some pressure on the recovery and causing some investors to lose patience (I can understand and I can relate). Note that even in the face of low growth, Danaher’s margins continued to expand due to cost containment measures, productivity enhancements, and a normalization after a period of weak demand. The topic of margins is more important than one would think, and I’ll discuss it in more detail when I go over the 2026 commentary.
I would highlight one other thing from the quarter: buybacks. Danaher conducted $2 billion worth of share repurchases in Q3. This allowed them to retire 1.4% of shares outstanding (10 million shares), providing a nice tailwind to EPS. I believe management gave some reasons to investors to start thinking differently about buybacks (assuming the stock price doesn’t suddenly skyrocket). Danaher has a new CFO who may be more open to buybacks, the Board recently approved a new buyback program to repurchase up to 35 million shares (which would be around 5% of the shares outstanding), and management explicitly said they view buybacks as a good opportunity at current prices:
Now, that said, and as we’ve demonstrated here, we’re not opposed to buybacks at current levels, the relative value of a buyback generates attractive financial returns.
We’ll see what happens going forward, but there seems to be an apparent change in tone regarding buybacks, which I consider great at current valuations.
Let’s jump right into the most relevant part of the call: the 2026 commentary. Danaher announced a CFO transition last quarter and mentioned that they would give initial 2026 commentary in Q3 (probably both things are related). The commentary for 2026 was pretty straightforward, but at the same time, it requires significant context. Let’s start with the outright numbers:
Danaher expects core revenue growth between 3% and 6% in 2026
Even at the low end of this core revenue growth guidance, the company expects 100 bps of margin expansion, leading to HSD (High Single Digit) EPS growth in 2026
Now, despite HSD EPS growth being an acceptable guidance for 2026, it needs further context. Let’s begin with the conservativeness baked into top-line growth. Management assumes a “modest” recovery of its end markets in 2026, which is somewhat consistent with what they are currently observing. This seems somewhat conservative because there are signs that things are incrementally getting better. The weakness right now seems to revolve around equipment, and management mentioned that they are guiding for flat equipment in 2026. They, however, also noted that they could potentially benefit from recent capacity expansion announcements, but that they prefer not to take these into account in the guide:
And what I’ve noted here in these discussions with some of the senior pharma leaders is that there’s more confidence now in making these investment decisions as some of these most favored nation negotiations are becoming workable solutions. And the tariffs are starting to dial in and remain somewhat consistent. So generally speaking, what we’re seeing here is more activity, more discussions. While some of those that planning is still fairly high level, certainly for greenfield investments, what we’re seeing is activity and quotations. And so forth around more brownfield investments. And we just haven’t seen those turn into orders yet. But having said that, we’re fairly constructive on equipment. But from a planning perspective, we thought it was prudent here to continue with what we’ve seen here up and through the third quarter.
So, what does this mean? That equipment goes from a headwind in 2025 to a potential source of upside in 2026. Great.
Then come the margins. Danaher guided for a 100 bps operating margin expansion in 2026, only to later admit that they were being pretty conservative there. If one excludes the productivity investments made this year (one-off investments), one can already get to 100 bps margin expansion without considering any operating leverage. Management mentioned that they were being conservative here to ensure they could meet the HSD EPS guide, even at the low end of the revenue growth guidance. What this tells me is that if revenue grows at the midpoint or at the high end of the guide, we’ll most likely see comfortable double-digit EPS growth.
Another thing to consider here is that this EPS guidance doesn’t take into account any capital deployment. If you recall what I’ve said above regarding buybacks, this ultimately means that Danaher would most likely be able to achieve LDD EPS growth even at the low end of a conservative revenue guide through repurchases. So, no matter how you look at it…the EPS guide seems pretty conservative (not surprising considering there’s a new CFO).
So, with all this in mind and the rise of the stock in today’s trading, let’s take a quick look at the valuation.