5

Thermo Fisher Scientific Inc. (TMO)

  • Equity
  • US
  • Healthcare
RISK
RETURN
Key risk factors
Negligible price volatility
Strong & resilient to price shocks
Good trading liquidity
Key return factors
Greatly overvalued vs peers
Somewhat favourable analyst view
Good margins and returns

Company profileThermo Fisher Scientific Inc. provides life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products and biopharma services in the North America, Europe, Asia-Pacific, and internationally. The company's Life Sciences Solutions segment offers reagents, instruments, and consumables for biological and medical research, discovery, and production of drugs and vaccines, as well as diagnosis of infections and diseases; and solutions include biosciences, genetic sciences, and bio production to pharmaceutical, biotechnology, agricultural, clinical, healthcare, academic, and government markets. Its Analytical Instruments segment provides instruments, consumables, software, and services for pharmaceutical, biotechnology, academic, government, environmental, and other research and industrial markets, as well as clinical laboratories. The company's Specialty Diagnostics segment offers liquid, ready-to-use, and lyophilized immunodiagnostic reagent kits, as well as calibrators, controls, protein detection assays, and instruments; immunodiagnostics develops, manufactures and markets complete bloodtest systems to support the clinical diagnosis and monitoring of allergy, asthma and autoimmune diseases; dehydrated and prepared culture media, collection and transport systems, instrumentation, and consumables; human leukocyte antigen typing and testing for organ transplant market; and healthcare products. Its Laboratory Products and Biopharma Services segment provides laboratory products, research and safety market channel, and pharma services and clinical research. It offers products and services through a direct sales force, customer-service professionals, electronic commerce, and third-party distributors under Thermo Scientific; Applied Biosystems; Invitrogen; Fisher Scientific; Unity Lab Services; and Patheon and PPD. Thermo Fisher Scientific Inc. was founded in 1956 and is headquartered in Waltham, Massachusetts.
Valuation: Greatly overvalued

Multiple
TTM
NTM
P/E
37.40
36.70
PEG
2.60
-
P/B
5.00
4.40
P/S
5.30
5.20
P/FCF
29.80
24.40
EV/EBITDA
24.90
21.20
From both historical and forecast perspectives, the stock is considerably overpriced compared to similar stocks. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and trading at neutral levels on P/FCF.
Performance: Mixed

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). The stock has outperformed this peer group by 20ppts over past six months and grown 5ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.
Analyst view: Somewhat favourable

The average target price is 629 and suggests 6% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 670.0. This translates into 13% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 553.0. This is equivalent to 6% downside potential in the worst case.
Profitability: Good

RoE
Thermo Fisher Scientific Inc. reported a return on equity (RoE) of 13.1% in the last 12 months, down from 16.4% in FY22. The market consensus projects an RoE of 12.2% in FY24, again behind its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 6.2% in the last 12 months, a decrease from 7.2% in FY22. The market analysts predict that RoA will be 5.6% in FY24, again weaker than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 7.2%, below the peers. The consensus estimate for FY24 for RoCE is 7.4%, again behind the peers.
Net margin
EBITDA margin
Historically, TMO has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 14.2%, down from 15.5% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 24.2% in the last 12 months, a decline from 26.8% in FY22.
RoIC / WACC = 1.1(average value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.1 in the past several years. This ratio implies a average shareholder value creation.
Growth: Average

Revenue
EBITDA
EPS
Free cash flow
TMO reported revenue of USD 42 492mn in the last 12 months, down 1% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 1% from FY23 to USD 15.66. Market expects EPS to reach USD 21.71 in FY24.Revenue growth has been constrained in the past several years (negative-to-neutral), while EBITDA has declined in recent years (negative). Net income has fallen in recent years (negative). Free cash flow, at the same time, has performed better than EBITDA would suggest, and has been growing slowly. On the positive side, FCF dynamics is very stable.
Dividends: Reasonable

Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.
Default risk: Moderate

The risk of default is moderate. We note robust profitability and adequate interest coverage, among the positive credit factors. Among the negative credit factors and we point to slow historical revenue growth, and excessive margin volatility.
Volatility: Negligible

In normal market circumstances, TMO is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.
Stress-test: Negligible

In highly turbulent market conditions, TMO is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.
Selling difficulty: Low

TMO boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible

No other major risks have been identified.