Thermo Fisher Scientific: Recent Correction Proves Compelling

Thermo Fisher Scientific (TMO) is the globe’s leader in serving science. The company’s mission is to encourage its customers to make the world healthier, cleaner, and safer.

It serves more than 400,000 customers operating in pharmaceutical and biotech companies, hospitals and clinical diagnostic labs, universities, research institutions, and government agencies, amongst other areas.

Thermo Fisher has continuously increased its depth of capabilities in technologies and software to address its customers’ emerging needs, always staying ahead of the curve.

This has been demonstrated through the past couple of years, during which the company’s revenues have skyrocketed amid Thermo Fisher’s quick, smart, and efficient R&D and M&A capabilities.

I am bullish on this blue-chip stock.

Latest Developments

Thermo Fisher’s latest Q3 results came in quite strong, with the company again taking advantage of the increased demand for diagnostics following the pandemic’s persistence despite the difficult comparison against a very strong Q3-2020.

The company achieved revenue growth of 9.49% to $9.33 billion, powered by its laboratory and diagnostic products and services, which continued to see unprecedented demand, also leading to high net income margins of 20.4%.

Hence, Thermo Fisher’s EPS came in at $4.83, merely 1% lower year-over-year due to modestly higher R&D costs. Management kept investing towards its industry-leading scale in high-growth and emerging markets.

Specifically, Thermo’s Pharma Services segment achieved additional capacity online to support vaccine and therapy production during the quarter.

Further, in South Korea, the company established a Bioprocess Design Center to accelerate bioprocessing innovation and collaboration with biopharma customers.

Lastly, in line with its partnership with CSL Limited, Thermo took on operating responsibility for a new state-of-the-art biologics location in Lengnau, Switzerland.

Valuation

Following the company’s Q3 results, Management’s outlook predicts adjusted FY 2021 EPS of $23.37. Based on the stock’s current price of $559.09, the stock trades at a P/E of 23.9.

In my view, the stock had gotten quite expensive when it was trading above $650. However, following the recent valuation multiple compression, I think that shares are now relatively reasonably valued.

While the stock does not offer a substantial dividend yield to value the company from this perspective, I expect investor returns in the medium term to be generated via Thermo Fisher’s persistent EPS growth capabilities driven by organic growth and smart acquisitions.

Wall Street’s Take

Turning to Wall Street, Thermo Fisher Scientific has a Strong Buy consensus rating, based on eight Buys and one Hold assigned in the past three months. At $701.25, the average Thermo Fisher Scientific price target implies 25.3% upside potential.

Conclusion

Thermo Fisher Scientific is a quality company with a great moat in the industry. Its financials keep expanding on top of last year’s pandemic-driven boost, which is rather impressive.

With the company constantly expanding its international diagnostics capability, the euphoria in its growth is likely to remain in the coming years.

Further, the company is financially sound, with a $12-billion cash position and a healthy long-term debt/equity ratio of just 9.5%. Following the stock’s correction over the past few months, I believe that shares are reasonably valued.

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