Key Points
After a four-year downturn, early signs in 2026 suggest biotech funding is stabilizing.
Danaher is guiding for 3%–6% revenue growth, assuming a gradual recovery.
Danaher sits below the upper end of its historical valuation range.
Biotech funding has been in a down cycle for roughly the past four years. Higher interest rates, tighter capital markets, and a collapse in funding after 2021 forced a lot of early stage biotech companies to cut spending, delay trials, or shut down entirely.
But that trend is starting to shift.
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Early 2026 data show biopharma spending is stabilizing and beginning to recover, with contract research firms and suppliers reporting improving demand as funding conditions loosen and deal activity picks back up.
And as capital returns to the system, much of it flows into infrastructure: tools, services, and manufacturing capacity. That's where Danaher Corp.(NYSE: DHR) comes in.
Picks and shovels
To be sure, Danaher is not actually a biotech company. It sells tools, instruments, and services used by biotech and pharma companies to develop and manufacture drugs. It's essentially a "pick-and-shovel" play for the biotech sector, which means it doesn't depend on whether a single drug works or fails. It doesn't need clinical trial success to generate revenue.
And it's also profitable in a way most biotech-related companies are not: it consistently converts revenue into high-margin earnings and into real cash flow.
Image source: Getty Images.
Numbers that matter
In 2025, Danaher generated $24.6 billion in total revenue, growing about 3% year over year despite a weak biotech funding environment. That's not trivial. This is a company that was still growing even as its end markets faced financing pressure.
During that year, Danaher delivered $3.6 billion in net income. That translates into a net margin of roughly 14%. For a company tied to industrial manufacturing and life sciences tools, that's strong.
Cash flow is also strong.
Danaher generated approximately $5.3 billion in free cash flow versus $3.6 billion in net income in 2025 (about 145% conversion), indicating it generates more cash than its reported earnings due to strong operating efficiency and non-cash expenses such as depreciation.
This is not a company hoping to become profitable. It's already there, and it's consistent. Even when the sector is struggling to land financing. That's why it stands out.
While biotech companies depend on binary outcomes, Danaher generates profit from the process itself (research, testing, and manufacturing), turning the entire ecosystem into a recurring, cash-producing business.
Looking strong
Danaher is emerging from a stretch in which its primary customers (biotech companies) were operating under tighter funding conditions, which has kept overall revenue growth in the low single digits.
Looking ahead, management is guiding for 3%–6% revenue growth in 2026 and earnings per share of roughly $8.35–$8.50, reflecting expectations for a measured, not aggressive, recovery.
So if capital flows into biotech pick up more materially, revenue growth could clock in even higher. But even with conservative guidance, Danaher still looks quite strong.
What the future holds
Trading recently at roughly $195–$200 per share, Danaher stock is changing hands at about 23 to 24 times earnings estimates, based on the 2026 EPS guidance of $8.35–$8.50.
That multiple reflects a market that is still discounting due to weak biotech funding and muted lab spending, which is reversing.
Now, Danaher has historically traded at a premium due to its high margins, recurring revenue, and central role in life sciences infrastructure. Over the past decade, Danaher's enterprise-value-to-EBITDA multiple has ranged from roughly the mid-teens to around 30, with valuations tending to move toward the higher end during periods of stronger demand in life sciences and bioprocessing.
A move back to a 28–30 earnings multiple (toward the upper end of Danaher's historical range) would be supported by its strong free cash flow generation, particularly if biotech funding and demand continue to recover.
Using the midpoint of guidance ($8.40 EPS), a 28 multiple would get the stock to roughly $235, while a 30 multiple would push it to around $250.
That range aligns with what you'd expect if biotech funding continues to recover and capital flows back into drug development, clinical trials, and manufacturing. Areas where Danaher is directly exposed.
Right now, the stock is priced for steady, mid-cycle growth. If conditions improve even modestly, both earnings momentum and valuation can move higher, and that combination is enough to support a notable stock price jump without relying on overly optimistic assumptions.
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Jeff Siegel holds no positions in stocks mentioned in this article. The Motley Fool has positions in and recommends Danaher. The Motley Fool has a disclosure policy. Jeff Siegel does not have positions in any of the stocks mentioned. The Motley Fool has a disclosure policy.
