Company Name: Thermo Fisher Scientific
Entry Price: $439
Target Price: $580
Projected Yield: 32.1%
Time Line: 3 to 6 months
Position Size: 2%
About Thermo Fisher Scientific
Thermo Fisher Scientific (TMO.US) is a leading manufacturer of lab equipment and consumables for diagnostics and scientific research in various fields of biology, medicine and industry. Thermo Fisher offers its products in four domains: Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Services. The brands the products and services are supplied under are various and include Thermo Scientific, Applied Biosystems, Invitrogen, Fisher Scientific, and Unity Lab Services.
What's the Idea?
Capitalize on a stock that may rise with good financial performance, product diversification, and the demand for anti-COVID solutions, which might be still here to stay for another two years.
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Why Trade Thermo Fisher Scientific
Reason 1: Anti-COVID Product Demand
2020 was quite a successful year for Thermo Fisher Scientific Inc: the company boosted both its sales and earnings. For Life Sciences Solutions, Specialty Diagnostics, and Laboratory Products and Services, the earnings increased by 77.40%, 43.70%, and 15.50%, respectively.
Both the production and the delivery schedule were adjusted, with the equipment for the detection and prevention of COVID-19 gaining top priority.
Lab diagnostic equipment, COVID-19 PCR antibody tests, and personal protective equipment and consumables were the most popular products and services among the customers.
Despite various vaccines already being available in the market, the demand for Thermo Fisher's COVID-19-related products should be here stay for another two years. With the country borders being gradually open and the lockdowns, easing, the company will get an additional edge, as more traveling will mean more COVID testing.
Thermo Fisher already a competitive edge against other similar companies that may help it maintain good earnings coming from COVID-19-related products over the next two years. This includes large market share, a wide range of products and solutions, and contracts singed with US public companies.
Reason 2: Product Diversification
Thermo Fisher Scientific is actively launching various acquisition campaigns in order to expand its product portfolio. Over the last 14 years, it acquired over 55 companies, which allows it to own over 200 brands. With such a wide range of products and solutions, the company has an estimated target market of $165B, with a potential growth of 3% to 5% a year.
In 2019, Thermo Fisher successfully acquired Brammer Bio, a company focusing on viral vectors for gene and cell therapy. This proved to be quite handy last year, since such solutions were used to create an anti COVID-19 vaccine.
In the meantime, Thermo Fisher is still running M&A campaigns: early this year, it announced the acquisition of Henogen SA, a viral vector manufacturer belonging to Novasep SAS Group, for €725M. Mesa Biotech was another acquisition, which cost $550 million. The products and solutions by the acquired companies are expected to complement Thermo Fisher's current portfolio and add $295M to its earnings.
Overall, Thermo Fisher is constantly acquiring small-scale companies, which allows it to grow its product base, maintain a competitive edge, and keep up with the industry average growth.
Reason 3: Financial Performance
Thermo Fisher had a very good 2020 in terms of financial results, too, with the earnings rising by 26% YoY to reach $32.20B, the annual operating profit margin increasing from 23.40% to 29.70%, and the net profit one, from 19.50% to 24.20%.
The cash balance is quite large, $10.30B, while the debt obligations are moderate, $21.70B, most of loans scheduled for payment in 2024. The current Net Debt to EBITDA ratio is 1.1x, which means the debt burden is very well covered. Finally, Thermo Fisher has no liquidity issues, with a stable cash flow, the FCF having reached $6.80B last year.
Thermo Fisher has slightly discounted ratios compared to its competition, the EV/EBITDA being at 18.1x, PE, at 22.2x, and Forward PE, 17.6x.
In February, various investment institutions and large banks raised their target price outlook for Thermo Fisher: BTIG Research put it at $590, Citigroup, at $530, Stifel Nicolaus, at $600, Cowen, at $585, and Morgan Stanley, at $575.
How to Use the Idea
- Buy Thermo Fisher Scientific stock at $439.
- Allocate no more than 2% of your portfolio for the transaction. To build a balanced portfolio, you can use the recommendations by our analysts.
- Sell the stock when the price reaches $580.
How to Buy Thermo Fisher Scientific Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: : In the Web Terminal section, type TMO.US (Thermo Fisher Scientific ticker in the NASDAQ) in the search box, and select Thermo Fisher Scientific in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type TMO.US (Thermo Fisher Scientific ticker in the NASDAQ) and select Thermo Fisher Scientific in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
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