Thermo Fisher Scientific (TMO) is a global leader in serving science. The company’s mission is to allow its customers to make the world healthier, cleaner, and safer.
It serves more than 400,000 customers operating anywhere amongst pharmaceutical and biotech companies, to hospitals, clinical labs, universities, research institutions, and government agencies.
With Thermo Fisher’s team counting more than 80,000 employees, the $227-billion company is the biggest in the industry. Over the past couple of years, Thermo Fisher has been leveraging its expertise in the space to serve all its customers in the battle against COVID-19.
In fact, the pandemic has acted as a fantastic catalyst in the company’s expansion during this time, massively boosting its financials. The stock has nearly doubled since the pandemic’s outbreak as a result.
Still, in my view, shares could have more upside ahead, and for this reason, I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Strong Financial Advancament
Thermo Fisher’s COVID-19 boost was evident in the company’s Q2 results, which came in quite strong. The company continued to ride the wave of growing demand for diagnostics, reporting notable revenue growth of 34% to $9.3 billion.
Thermo Fisher’s laboratory and diagnostic products and services are currently enjoying unprecedented demand levels, which led to the company achieving a net income margin as high as 19.7%.
The combination of record sales and the company’s ability to achieve high margins resulted in Thermo Fisher reporting quarterly EPS of $4.61, 59% higher than Q2 2020.
To capitalize on its ongoing momentum, management proceeded to leverage its industry-leading scalability by investing in high-growth and emerging markets in the first half of 2021.
Specifically, in Q2, Thermo Fisher brought further capacity online to support vaccine and therapy production all over the world, by expanding its own production of laboratory plastics in North America and Europe.
Thermo Fisher also opened a new plasmid DNA facility in Carlsbad, California, to suffice the increasing demand for plasmid DNA-based therapies, and mRNA-based vaccines.
Due to the company meaningfully allocating its increased profitability to expand its operations very swiftly over the past couple of years, its strong momentum should be sustained moving forward, despite COVID-19 weakening.
Valuation
In the latest quarterly results, management announced it expects adjusted FY 2021 EPS of $22.07, which implies a P/E of 26.2. Considering that Thermo Fisher tends to beat its own estimates, the multiple is likely to end up being lower.
Weighing the company’s robust moat, mission-critical operations, and ongoing growth, this is a fair price to pay for the business in the current low-rate environment.
While the company has grown its dividend sequentially for four years now, with the latest hike being by an impressive 18%, the yield remains rather tiny.
Investors should expect future returns to be in the form of capital gains.
Wall Street’s Take
Turning to Wall Street, Thermo Fisher has a Strong Buy consensus rating, based on 13 Buys, two Holds, and zero Sells assigned in the past three months. At $648.07, the average Thermo Fisher price target implies 12% upside potential.
Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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