Medical equipment giant Danaher (DHR) will officially spin off its environmental-and-applied solutions segment later this month, and our plan is to stay invested in the soon-to-be standalone company, referred to as Veralto, which is able to trade under the ticker symbol VLTO. That expectation was reinforced Wednesday when Veralto management delivered a presentation for investors and Wall Street analysts. Veralto’s attractive characteristics include a history of regular revenue growth and money generation, combined with the potential advantages typically afforded to spun-out corporations – namely, a more focused management team that may invest because it sees fit, unencumbered by a bigger corporate structure. Based on our current 520-share stake in Danaher, we’re set to receive 173 shares of Veralto on Sept. 30, the day the separation is officially accomplished. Our Danaher share count is not going to change post-spin, but Danaher’s stock price — currently trading around $255 a share — will adjust that day to reflect the departing value of Veralto. DHR YTD mountain Danaher’s stock performance yr up to now. What’s Veralto? Veralto will consist of two primary divisions – water quality and product quality & innovation – which generated nearly $5 billion in combined sales in 2022 under the Danaher roof. The water quality unit contributed about 60% of that figure. Varelto’s various business areas may not have universal name recognition but they supply services and products used in on a regular basis life. During Wednesday’s investor event, Veralto CEO Jennifer Honeycutt demonstrated how a water bottle is “the intersection of all of Veralto’s businesses” — from the water that should be treated after which undergo analytical testing, to the packaging and design of the bottle itself. Veralto can be a crucial player in municipal water supplies, including Recent York, the most-populous U.S. city. Recent York City has installed greater than 50 custom-designed UV light systems – made by Veralto’s Trojan Technologies – to assist disinfect as much as 2 billion gallons of water every day, in keeping with Melissa Aquino, senior vice chairman for the water quality unit. A financial overview Over the 20 years ended in 2022, combined sales at Veralto’s businesses had a roughly 9.5% compound annual growth rate – going from about $800 million in 2002 to almost $5 billion last yr. Meanwhile, adjusted operating profit rose at an 11% compound annual growth rate, to $1.1 billion in 2022, compared with $140 million in 2002. On a core-revenue basis – which excludes the impact of currency fluctuations, in addition to acquisitions and divestitures – each the water quality and product quality & innovation segments have delivered mid-single-digit growth over the long run, in keeping with CFO Sameer Ralhan. The corporate’s overall core annual revenue growth rate of 4% over the past 10 years is above the 3% real U.S. GDP growth rate, on average, he said. Still, Ralhan said: “Our businesses have an incredible track record of monetary performance under Danaher’s ownership, and yet there are quite a few opportunities to make these businesses even higher and create tremendous value.” Veralto’s technique to deliver those improvements will adhere to a modified version of the highly regarded Danaher Business System – which means not only running its own businesses more efficiently and growing margins, but additionally looking for strategic takeover targets As an independent entity, Veralto could have greater flexibility to make use of its money to purchase corporations it deems attractive and embark on a value-creating strategy for those acquired entities — just as Danaher has consistently done. Bottom line We expect to remain invested in each Danaher and Veralto once the spin-off is accomplished and the tax-free share distribution occurs on Sept. 30. That is a sentiment that is been further strengthened by Danaher’s stock performance of late . As we noted when the transaction was first announced last yr , Danaher has made smart, tax-advantaged divestitures in recent years – benefiting its remaining shareholders over the long run and, not less than in the short term, shareholders in the spun-out entities. In July 2016, Danaher accomplished the separation of its industrial technologies and test-and-measurement businesses into an organization called Fortive (FTV) – with DHR investors getting one share of Fortive for every two DHR shares they owned. In December 2019, Danaher finalized the separation of Envista (NVST), its collection of dental businesses. In that transaction, Danaher did a partial initial public offering of Envista stock in September 2019 , then later gave DHR investors the choice to exchange a few of their DHR shares for Envista stock. Investors can sometimes may be tempted to instantly sell their entitlements of a spun-off company as soon as they’re received. This is sensible to do if it is a low-quality company with limited prospects for growth. But each Danaher’s recent spins resulted in investors seeing double-digit percentage gains in the latest company after one yr. Value was created by the separation of the businesses, and we predict the same will occur again with Veralto. (Jim Cramer’s Charitable Trust is long DHR. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked a couple of stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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A Miami supermarket in July 2023.
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Medical equipment giant Danaher (DHR) will officially spin off its environmental-and-applied solutions segment later this month, and our plan is to stay invested in the soon-to-be standalone company, referred to as Veralto, which is able to trade under the ticker symbol VLTO.