This life sciences company beat analysts’ earnings estimates by $0.07 last quarter. Coverage of the shares was just initiated at Needham, with a ‘Strong Buy’ rating.
Thermo Fisher Scientific Inc. (TMO)
From Dow Theory Forecasts
Thermo Fisher Scientific Inc. (TMO) bills itself as “the world leader in serving science.” The life-sciences titan provides a variety of equipment, supplies, and services for both the
research and practical sides of the health-care market.
This wide-screen approach has supported impressive growth. Sales rose 21% in the 12 months ended September, with per-share profits up 29% and operating cash flow 38%. Over the last five years, Thermo Fisher managed annualized growth of at least 13% in all three metrics.
The consensus projects growth of 3% in sales and 14% in per-share profits for the December quarter (results expected Jan. 30) and growth of 5% in sales and 11% in profits for full-year
2019. Analysts expect that double-digit growth to continue, calling for annual profit growth of more than 11% over the next five years.
We’re adding the shares to the Focus List this week because we see a lot of reasons for optimism about the shares. Here are just a few:
Five signs of health
1) Broad spectrum: Thermo Fisher operates in four business units:
• Laboratory products and services (39% of revenue in the first three quarters of 2018)
• Analytical instruments (21% of revenue)
• Specialty diagnostics (15%)
• Life-sciences solutions (25%)
Most of Thermo Fisher’s operations assist companies doing pharmaceutical, genetic, or industrial research. Such diversity limits Thermo Fisher’s exposure to weakness in any individual slice of the health-care sector.
2) Broad spectrum, second dose:
This point is connected to the previous one, as Thermo Fisher’s business mix allows it to target multiple end markets. In the first three quarters of 2018, the company generated 38% of
its revenue from drug and biotechnology firms, with the rest coming from health-care providers and diagnostic labs (21%), industrial and applied science firms (19%), and academic or
government researchers (22%).
3) Big and strong. Thermo Fisher, with sales of nearly $24 billion in the last year and a stock-market value of nearly $100 billion, is the giant of the life-sciences group, more than twice
the size of its largest competitor. In this highly fragmented industry, most rivals focus on one or two specialties, while Thermo can provide turnkey product and service packages other
companies cannot.
4) Signs of recovery. Since Jan. 2, when Bristol-Myers Squibb (BMY) announced plans to acquire Celgene (CELG), life-sciences stocks have rallied an average of 4%. This, after averaging declines of 17% in the previous month. We have no qualms about riding a rally, as long as a stock remains reasonably valued—which brings us to the last key sign of health.
5) Low premium. Thermo Fisher trades at 22 times trailing earnings, 11% below the median for life-sciences companies in the S&P 1500 Index and 24% below its own three-year average.
Richard Moroney, CFA, Dow Theory Forecasts, www.dowtheory.com, 800-233-5922, January 21, 2019