Thermo Fisher ready for next test

Recent Price $469
Dividend $1.04
Yield 0.2%
P/E Ratio 24
Shares (millions) 399
Long-Term Debt as % of Capital 33.5%
52-Week Price Range $532.57 - $290.52

 

We don’t typically glean much value from corporate slogans, but Thermo Fisher Scientific ($469; TMO) bills itself as “world leader in serving science.” The phrase fits, and in part explains the appeal of this company.

Thermo Fisher need not chase a risky drug, create a new and better power cell, or pour investment dollars into a substance that could turn into either a miracle lubricant or a massive waste of time. Instead, Thermo Fisher provides equipment and supplies designed to help others swing for the fences. Longtime readers will recognize our general preference for sellers of pickaxes rather than miners, and Thermo Fisher fits such an approach. The stock is a Focus List Buy and a Long-Term Buy.

Post-pandemic picture

The company’s efforts to support makers of coronavirus tests and vaccines generated most of its 54% sales growth in the December quarter and 26% growth for full-year 2020. Per-share profits nearly doubled in the December quarter and jumped 58% for the year. Impressive, but not repeatable, as few companies benefited more from the pandemic than Thermo Fisher, which found itself in the right place at the right time in 2020. At its peak, Thermo Fisher produced 20 million coronavirus test kits a week, worked on more than 250 virus related projects, and provided masks to at least 7,000 customers.

We consider consensus projections for 12% profit growth in 2021 an indicator of solid organic growth, given last year’s inflated comparison. Analysts target a profit decline of 8% in 2022 and a gain of 8% in 2023, reflecting the likely dip, though not disappearance, of demand for covid tests. Coming out of the pandemic, Thermo Fisher expects to exceed its previous long-term revenue-growth target of 5% to 7%. In response to the pandemic, the company improved its production and distribution capabilities, increased its research capacity, and enlarged its customer base — gains in scale that should translate into post-coronavirus competitive advantages.

While drug makers have become Thermo Fisher’s most high-profile clients in an era of vaccination fascination, the company’s overall business mix remains fairly diverse. About 40% of revenue comes from drug and biotech firms, another 25% from makers of diagnostic tests and other healthcare companies. Industrial firms and academic/government labs account for the rest of the company’s revenue. These last two end markets suffered in 2020, hurt by the closure of labs and factories, as well as the general economic downturn. However, both industrial and academic/government revenue rose in the December quarter, an encouraging omen.

No need to pay up

The stock has gained 45% over the past 12 months despite a slight decline so far in 2021. Yet the valuation remains appealing at 21 times projected 2021 earnings, 13% below the median for the health-care sector and 36% below the median life-sciences company. With an appealing blend of growth and value, Thermo Fisher remains our top pick in the health-care sector.

Thermo Fisher Scientific Inc., 168 3rd Ave., Waltham, MA 02451, (781) 622- 1000, www.thermofisher.com.

 

Quarter Per-Share Earnings* Sales Change Quarterly Price Range P/E Ratio
Range
Dec '20 $7.09 vs. $3.55 54% $532.57 - $424.04 33 - 26
Sep '20 5.63 vs. 2.94 36% 441.96 - 349.04 33 - 26
Jun '20 3.89 vs. 3.04 10% 358.00 - 270.41 29 - 22
Mar '20 2.94 vs. 2.81 2% 342.26 - 250.21 28 - 20

 

Year
(Dec.)
Sales
(Bil.)
Per-Share Earnings* Per-Share
Dividend
52-Week Price Range P/E Ratio
Range
2020 $32.2 $19.55 $0.88 $532.57 - $250.21 27 - 13
2019 25.5 12.35 0.76 330.14 - 210.07 27 - 17
2018 24.4 11.12 0.68 253.91 - 190.38 23 - 17
2017 20.9 9.49 0.60 201.20 - 140.00 21 - 15

 

Quadrix Scores
Overall Momen-
tum
Value Quality Financial
Strength
Earnings
Estimates
Perform-
ance
Reversion
81 93 57 97 80 56 17 8

 

* Earnings exclude special items.
NA Not Available.
Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.