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About Thermo Fisher Scientific
First of all, try saying “Thermo Fisher Scientific” ten times in a row.
Second of all, right on Lamar, merge left onto Airport, right on Koening, left on Avenue F, left on 56th street, right on Duval, merge onto San Jacinto, hang a right on 8th street, hit a left on Guadalupe, follow the bend across Lady Bird Lake, left on Riverside, right on Burton, right on Oltorf, left on Parker, find yourself on Freidrich and in a matter of seconds find yourself at one of Thermo Fisher’s facilities here in Austin, Texas.
While to most that was pretty much completely pointless information, it provides a sort of natural segway into what Thermo Fisher even is, what it does and, of course, so much more as we dive into this company of discussion today.
First and foremost, this Waltham, Massachusetts-headquartered company is a heavyweight in the medical instrumentation market, particularly in that it engages in the manufacturing and sale of a wide variety of general and specialty medical and laboratory instrumentation and related equipment, primarily through its notable brands under its corporate umbrella including the likes of Thermo Scientific, Applied Biosystems, Invitrogen, Unity Lab Services, Fisher Scientific as well as Patheon and PDD, not to mention the fact that it is also in the process of acquiring an Uppsala, Sweden-headquartered protein biomarker (a sort of measuring mechanism for something’s biological condition) by the name of Olink.
From products such as microbiological incubators and measuring equipment to other sorts of analytical reagents and practical tools and pieces of equipment used and frankly depended upon by medical and diagnostics professionals on a daily basis, Thermo Fisher seemingly puts it together and sells it all.
In addition to medical and lab professionals, universities (students and faculty members working in lab settings) are also customers of Thermo Fisher Scientific, not to mention other independent research institutions as well as for government agencies and entities.
From our perspective, one of the biggest inherent positives with this company is the fact that in the years and decades to come, there will more than likely be an increasing amount of demand for Thermo Fisher’s extensive product line(s) from the aforementioned entities (which, themselves tend to be resistant to greater overall recessionary pressures, thankfully), not to mention the emerging biotechnology and therapeutics companies forming now, investing heavily in equipment to push their discoveries closer and closer towards Food and Drug Administration (FDA) approval.
Of course, no one company is completely immune to recessionary pressures, however, given what we have seen thus far, companies that operate in and around the pharmaceutical space have generally fared better than other companies in other unrelated industries given that regardless of the state of the macroeconomic landscape, treatments need to be developed and research needs to be done.
With that, it is about that time to introduce Thermo Fisher Scientific’s core financials and other pertinent ratios and figures that will help us in determining whether or not this company’s stock is worth indefinitely buying and holding.
Thermo Fisher’s stock financials
With a current share price of $453, a market capitalization of a notable $175.03 billion along with a price-to-earnings (P/E) ratio of 29.75, not to mention that Thermo Fisher dishes out an annual dividend of $1.40 to its shareholders at the moment, this prominent, nay, gigantic (I mean, look at this company’s market capitalization, as it is nothing short of massive) scientific equipment developer and manufacturer is trading a little ahead of itself, at least from a strict price-to-earnings basis, as its present price-to-earnings ratio stands nearly nine points higher than that of the commonly held, fair value benchmark of 20, implying that Thermo’s shares (NYSE: TMO) are trading a premium for the time being, that is, if there isn’t growth behind this company, perhaps with respect to its year-over-year (YOY) revenues.
Don’t worry, we will check on this momentarily.
At any rate, Thermo Fisher Scientific’s executive team is in charge of tending to and sufficiently handling just about $97.1 billion in terms of total assets along with $53.1 billion in terms of total liabilities, which is frankly phenomenal for such a large, established company such as this one, as its balance sheet screams and shouts that it is ready for both any ordinary economic and/or recessionary headwinds forming ahead of it as well as it being fully prepared to buy out some of the smaller, more nimble, regional competitors that operate within its space, case and point, Olink.
We don’t want to harp on this company’s balance sheet much more, just to go on about how stellar of a condition it is presently in.
Well done, Thermo’s management team, well done.
As it relates to the company’s income statement, Thermo Fisher’s annual revenues since 2018 have undoubtedly been heading in the right direction (literally), with, for example, the company’s total annual revenue in 2018 pegged at around $24.3 billion, $25.5 billion during the following year, $32.2 billion in 2020 (a notable jump likely due to increased demand for testing equipment and products due to COVID-19), $39.2 billion in 2021, leading all the way up to its latest reported annual revenue figure of just south of $45 billion in 2022.
Clearly, there has been a more than solid amount of revenue growth with this medical instrumentation firm, thus, in a way, justifying the company’s stock (NYSE: TMO) trading above the fair value benchmark by a certainly modest yet reasonable amount, especially considering the stock’s recent sell-off of around 10% between early October and early November 2023.
This definitely isn’t the end all be all but it is something that gives us some confidence in pondering investing in this company’s stock while it is trading at somewhat higher values with respect to what it is actually worth on an intrinsic value basis.
Onto the company’s cash flow statement, Thermo Fisher’s net income has also been moving in the right direction and so has its total cash from operations, referencing both of their respective figures since 2018 as well.
Specifically, Thermo’s total cash from operations have more than doubled between 2018 and 2021, previously standing in the neighborhood of $4.5 billion and experiencing a notable rise to $9.3 billion, as reported in 2021, not to mention the fact that the company’s net income has been rising near every single year since 2018 as well.
Thermo Fisher’s stock fundamentals
Regarding Thermo Fisher’s trailing twelve month (TTM) net profit margin and its stance against that of the industry’s respective average, this company means business, as there is seemingly no question as to who one of the largest leaders of the medical instrumentation and development space(s) is, given that the company’s listed TTM net profit margin stands at 13.84% to the industry’s respective average of -0.08%, not even quite breaking even.
Given Thermo Fisher Scientific’s dominant industry position, as can be seen through its market share, it makes a good deal of sense that this company has such a distinguished, markedly stronger TTM net profit margin as it measures up with the competition (again, on average), which can be viewed as being especially noteworthy since it doesn’t always pan out to be the case that companies with copious amounts of market share always produce higher comparable TTM net profit margins than those of the competition’s averages, but in the case of Thermo Fisher, it easily checks the box.
Additionally, the company’s TTM returns on assets and investment(s) also remain quite competitive to the industry’s listed respective averages, as, for instance, TD’s platform also has Thermo Fisher Scientific’s TTM return on assets at 6.41% to the industry’s displayed average of 5.82%, which, while competitive, Thermo still has a slight edge.
Should you buy Thermo Fisher stock?
Thermo Fisher Scientific is one of the largest medical instrumentation and device companies in the world.
Its track record is storied, to say the least, it supplies critical equipment and data to researchers, day-to-day physicians among many others that matter a great deal within the diagnostics and greater overall medical industry, and, through the core aforementioned figures, there is clearly some concrete evidence supporting the fact that Thermo Fisher runs a resoundingly recession resistant business model given its moat, market share and the customers it serves on a daily basis and their operating in a recession resistant landscape as well.
Additionally, its balance sheet is in excellent shape, it has a great history of pursuing overwhelmingly accretive acquisitions and partnerships, its net income has been generally growing, its cash flows are resoundingly positive, its total, year-over-year revenues have been ticking upwards as well, not to mention that its TTM net profit margin and core relative return metrics are in great shape as well.
Therefore, given these initial figures, there isn’t a whole lot to dislike about Thermo Fisher Scientific at the moment, and given the present and future of biotechnology, we deem there to be even more heightened demand for Thermo Fisher and its wide array of products for the years and decades to come.
All in all, we feel pretty good about offering this company’s stock (NYSE: TMO) a “buy” rating, even when considering that its price-to-earnings ratio is on the higher end.
Sometimes quality demands a premium.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.