Investment research report for TMO

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

Thermo Fisher Scientific Inc. is a leading provider of scientific instrumentation, reagents, consumables, software, and services to the life sciences, healthcare, and applied markets worldwide. The company operates through four segments: Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Biopharma Services.

Growth Strategy and Competitive Advantages

Thermo Fisher’s proven growth strategy focuses on innovative new product development, leveraging scale in high-growth markets, and delivering a unique customer value proposition. The company’s diversified business model, strong market positions, and operational excellence through its PPI Business System provide competitive advantages. Strategic acquisitions, such as PPD and The Binding Site Group, have further strengthened its capabilities and market reach.

Financial Performance and Outlook

Despite near-term headwinds from the moderation in COVID-19 related demand, Thermo Fisher has demonstrated resilience through its diversified revenue streams, strong profitability, and robust cash flow generation. The company’s disciplined capital allocation, including strategic investments, acquisitions, and shareholder returns, positions it well for long-term growth in attractive end markets like pharma/biotech, diagnostics, and academic/government research.

Investment Highlights

  • Diversified business model mitigating concentration risks
  • Strong financial position and cash flow generation
  • Successful track record of strategic acquisitions and integration
  • Exposure to attractive long-term growth trends in life sciences and healthcare
  • Disciplined capital allocation and shareholder-friendly policies

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Valuation Analysis

PE ratio

  • Low: 28.357145246853943
  • Base: 31.90533177219813
  • High: 35.45351829754232

PB ratio

  • Low: 2.6111289035169167
  • Base: 4.282648284392762
  • High: 5.954167665268606

EPS Growth

  • Low: 8.93%
  • Med: 15.33%
  • High: 19.58%

DPS Growth

  • Low: 9.80%
  • Med: 10.95%
  • High: 12.00%

FCF Growth

  • Low: 8.34%
  • Med: 13.14%
  • High: 16.60%

Value forecast by FCF

  • Low: 409.47
  • Med: 547.87
  • High: 678.05

Value forecast by EPS

  • Low: 424.10
  • Med: 626.86
  • High: 814.99

Value forecast by DPS

  • Low: 447.05
  • Med: 479.28
  • High: 510.96

The price of TMO today is $569.17.

Price target for 18 months from now

  • Low: 538.79
  • Med: 557.38
  • High: 574.79

Price target for 4 years from now

  • Low: 488.16
  • Med: 537.73
  • High: 584.16

Price target for 10 years from now

  • Low: 366.64
  • Med: 490.56
  • High: 606.64

The net present value multiplier discounted at 10.22% gives the value of the stock as:
– Low: 0.64
– Med: 0.86
– High: 1.07

The upside/downside ratio is 0.72, and our rating is Sell.

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Industry and Competitors Analysis

Thermo Fisher Scientific Inc. (TMO) and Competitors

Based on the information provided, TMO (Thermo Fisher Scientific Inc.) operates in the medical diagnostics and research industry. Some key points about the company and its competitors:

TMO is a major player providing life sciences solutions, analytical instruments, diagnostics, and lab products/services to pharmaceutical, biotechnology, healthcare, academic and government markets.

Key competitors in this space include Agilent Technologies (A), IDEXX Laboratories (IDXX), Illumina (ILMN), Waters Corporation (WAT), Danaher (DHR), Invitae (NVTA), Guardant Health (GH), Mettler-Toledo (MTD), Charles River Laboratories (CRL), and Revvity (RVTY – formerly PerkinElmer).

These companies offer products and services spanning instruments, reagents, consumables, software, testing services for drug discovery/development, diagnostics, genomics, clinical/life sciences research across pharma, biotech, healthcare, academic and industrial markets.

In terms of competitive positioning, TMO appears to be one of the largest and most diversified players with a very broad product portfolio across life sciences, analytical instruments, diagnostics and lab services. Its size, scale and breadth position it strongly.

Other major competitors like DHR, ILMN, A, IDXX, WAT are also sizeable players but relatively more focused on specific areas like diagnostics, genomics, analytical instruments etc.

Smaller players like NVTA, GH are more specialized in areas like genomic testing, liquid biopsy etc.

So in summary, TMO is a leading global provider in the medical diagnostics and research tools/services industry with a highly diversified portfolio, competing with other large and specialized players across various sub-segments.

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Chart of Competitors

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Financial Analysis

Financial Strength

The company has maintained a healthy current ratio above 1.2, indicating good liquidity to cover short-term obligations. The debt-to-equity ratio has been relatively stable around 0.7-0.8, suggesting a manageable debt level. Interest coverage ratios have been consistently above 4, signaling the company’s ability to service its debt obligations.

Potential for Growth

Revenue growth has been positive in most quarters, with some fluctuations due to acquisitions and divestitures. The company has demonstrated the ability to grow earnings per share and net income, indicating potential for future growth. Operating cash flow growth has been volatile but generally positive, providing resources for investments and expansion.

Competitive Advantage

As a leading provider of life sciences solutions, analytical instruments, and laboratory products, Thermo Fisher Scientific operates in a specialized and technical industry, which can create barriers to entry. The company’s diverse product portfolio and global presence across various markets suggest a competitive advantage.

Quality of Management

Profitability metrics like return on equity, return on assets, and return on capital employed have been generally positive, indicating efficient use of resources by management. The company’s ability to maintain growth and financial stability over time suggests effective management practices.

Shareholder Friendliness

Thermo Fisher Scientific has consistently paid dividends, although the dividend yield is relatively low. Share repurchases have been limited, but the company has focused on reinvesting cash flows into growth opportunities.

Valuation

The price-to-earnings ratio has fluctuated but generally remained in the range of 25-40, which may be considered reasonable for a company in this industry. The price-to-book ratio has been above 3, suggesting that the market values the company’s assets and future growth potential.

Overall, Thermo Fisher Scientific appears to be a financially strong company with growth potential, competitive advantages in its industry, and effective management. While shareholder returns through dividends are modest, the company’s focus on reinvesting for growth could benefit shareholders in the long run. Valuation metrics indicate that the market views the company favorably, although investors should consider their own investment objectives and risk tolerance.

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Chart of Key Per Share Metrics

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Chart of Absolute Metrics

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Earnings Call Multi-Year Analysis

Thermo Fisher’s Proven Growth Strategy

Thermo Fisher has a proven growth strategy focused on innovation, leveraging scale in high-growth markets, and delivering a differentiated customer value proposition. This strategy is driving consistent market share gains across the company’s businesses.

Operational Excellence Enables Agility

The company’s PPI (Practical Process Improvement) Business System enables strong operational execution, cost management, and productivity improvements. This operational excellence allows Thermo Fisher to navigate dynamic market conditions while continuing to invest for long-term growth.

Investing for the Future

Thermo Fisher is making significant investments in capacity expansion, capability building, and high-impact innovation to strengthen its competitive position and support future growth opportunities, particularly in areas like bioproduction and pharma services.

Enhancing Capabilities through Acquisitions

The company’s acquisitions, such as PPD and The Binding Site, are performing well and enhancing Thermo Fisher’s capabilities and market leadership in attractive growth markets like clinical research services.

Pricing Power and Inflation Management

Thermo Fisher has demonstrated pricing power and the ability to offset inflationary pressures through a combination of strategic pricing actions and productivity initiatives.

While the company is facing some near-term macroeconomic headwinds and a moderation in pandemic-related revenue, its core businesses remain strong, and it expects to continue growing above market rates.

Disciplined Capital Deployment

Thermo Fisher has a disciplined capital deployment strategy, combining strategic M&A, capacity investments, and returning capital to shareholders through share buybacks and dividends.

Commitment to Sustainability

The company’s focus on environmental, social, and governance (ESG) initiatives, such as its commitment to carbon neutrality and STEM education programs, supports its long-term sustainability.

Overall, Thermo Fisher’s consistent execution of its growth strategy, operational excellence, and strategic investments position the company well to navigate near-term challenges and continue delivering differentiated performance and value creation for long-term investors.

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Financial Statements Multi Year

Revenue and Growth

Thermo Fisher has demonstrated consistent organic revenue growth over the years, driven by strong demand across its diversified business segments and end markets like pharma/biotech, diagnostics, and academic/government research. However, revenues declined in 2023 and 2024 due to lower demand for COVID-19 related products as the pandemic subsided.

Profitability and Margins

The company has maintained strong profitability, with adjusted operating margins around 22-24% in recent years, despite some margin pressure from strategic investments and acquisitions. Productivity improvements, pricing actions, and cost discipline have helped offset headwinds and support margins.

Acquisitions and Integration

Thermo Fisher has a successful track record of strategic acquisitions, such as PPD, The Binding Site Group, and CorEvitas, which have expanded its capabilities and market reach. The company has demonstrated expertise in integrating acquisitions and realizing synergies.

Cash Flow and Capital Allocation

Thermo Fisher generates robust operating cash flows, providing financial flexibility for investments, acquisitions, and shareholder returns. The company has a disciplined approach to capital allocation, balancing organic growth initiatives, strategic M&A, share repurchases, and dividends.

Financial Position and Liquidity

The company maintains a strong balance sheet, with ample liquidity and access to capital markets, enabling it to navigate economic uncertainties and pursue growth opportunities.

Diversification and End Market Exposure

Thermo Fisher’s diversified business model, spanning life sciences, analytical instruments, specialty diagnostics, and laboratory products, mitigates concentration risks and provides stability. The company is well-positioned to benefit from long-term trends in its end markets, such as increased R&D spending, diagnostic testing, and academic/government research funding.

Overall, Thermo Fisher’s financial performance, strategic execution, diversification, and disciplined capital allocation make it an attractive long-term investment opportunity, despite near-term headwinds from the moderation in COVID-19 related demand.

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Insider Trading Analysis

Long-term Patterns

The CEO, Marc N. Casper, has been actively trading the company’s stock over the past year, with a mix of option exercises and stock sales. Other senior executives like the CFO, Williamson Stephen, have also been regularly exercising options and selling shares. There have been several instances of executives receiving stock awards as part of their compensation packages.

Recent Patterns

In the most recent transactions, Casper has continued to exercise options and sell a significant number of shares, totaling over 100,000 shares sold in the past few months. Williamson also exercised options and sold a large block of shares in May 2023, totaling over 20,000 shares. Other executives like Boxer, Britt, and Lagarde have also engaged in option exercises and share sales in recent months.

Implications for Investors

The active trading by the CEO and other senior executives could be seen as a sign of confidence in the company’s performance and future prospects. However, the large volume of share sales by the CEO and other insiders may raise some concerns among long-term investors about potential near-term downside risk. Investors should closely monitor the company’s financial performance and any further insider trading activity to assess the overall health and outlook of the business.

In summary, the long-term and recent insider trading patterns suggest that the company’s senior executives are actively managing their equity positions, which could have implications for both short-term and long-term investors.

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Management Compensation Benchmark Analysis

Thermo Fisher Scientific Inc. (TMO) Executive Compensation Insights

Based on the executive compensation details provided, the key insights for a long-term investor in Thermo Fisher Scientific Inc. (TMO) are:

  1. The average percentage of base salary out of total compensation for the executives at TMO is 16.076%. This is lower than the average for Agilent Technologies, Inc. (A) at 32.230% and IDEXX Laboratories, Inc. (IDXX) at 30.203%, suggesting that a larger portion of TMO’s executive compensation is tied to variable, performance-based components like stock awards and incentive plan compensation.

  2. The base salary portion of total compensation for the CEO of TMO, Marc N. Casper, has been consistently low, ranging from 5.981% to 9.117% over the years reported. This indicates that a significant majority of Casper’s compensation is linked to the company’s performance through stock awards and incentive plans, which aligns his interests with those of shareholders.

  3. Similarly, the base salary portions for other key executives at TMO, such as the Chief Financial Officer and Chief Operating Officer, are also relatively low, generally below 20% of total compensation. This suggests that TMO’s executive compensation structure is designed to incentivize long-term value creation for shareholders.

  4. In comparison, the base salary portions for executives at Illumina, Inc. (ILMN) and Waters Corporation (WAT) are generally higher, with averages of 34.983% and 29.989%, respectively. This indicates that TMO’s compensation structure may be more heavily weighted towards performance-based pay, which could be viewed positively by long-term investors.

Overall, the executive compensation data suggests that Thermo Fisher Scientific Inc. has structured its executive pay in a way that closely aligns the interests of its top leaders with the long-term success and value creation of the company, which could be an attractive feature for long-term investors.

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Proxy Statement Analysis

Executive Compensation Structure

The following analysis is based on the latest proxy statement of TMO. Based on the information provided, this appears to be a proxy statement from Thermo Fisher Scientific Inc. As a long-term investor, some key insights that could be gleaned from this document regarding executive compensation and alignment with shareholder value include:

The structure of executive compensation, including base salaries, annual bonuses, and long-term incentive plans, and how they balance fixed and variable pay.

Performance Metrics and Goals

The specific performance metrics and goals used for annual and long-term incentive awards, and whether they are aligned with driving long-term value creation.

Vesting and Holding Requirements

Vesting schedules and holding requirements for long-term equity awards like stock options and restricted stock units, which encourage a longer-term focus.

Stock Ownership Guidelines

Stock ownership guidelines that require executives to maintain a certain level of company stock, aligning their interests with shareholders.

Clawback Policies

Clawback policies that allow the company to recoup compensation in cases of misconduct or financial restatements, mitigating risks.

A careful review of these compensation disclosures can provide valuable perspective on how well the company is incentivizing its leadership to prioritize sustainable long-term performance and shareholder value creation. Executive pay practices are an important consideration for long-term investors evaluating the company’s governance and alignment with their interests.

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News Analysis

Positives

Based on the recent news and analyst commentary, here are the key points that could impact a long-term investor in Thermo Fisher Scientific (TMO):

  • Strong revenue and earnings growth driven by robust demand for COVID-19 testing products and services during the pandemic. TMO’s COVID-19 response revenue was a significant contributor to its overall performance.
  • Expansion into attractive areas like gene therapy, cell therapy, and precision medicine through acquisitions and new product launches, positioning TMO for long-term growth beyond the pandemic.
  • Diverse revenue streams from serving pharmaceutical, biotech, healthcare, and academic/government end markets, providing resilience.
  • Consistent share buybacks and dividend increases, reflecting strong cash flows and commitment to shareholder returns.

Potential Concerns

  • Uncertainty around the sustainability of elevated COVID-19 testing demand post-pandemic and its impact on future revenue growth.
  • Margin pressure from rising costs and unfavorable currency movements.
  • High valuation multiples, with the stock trading at premium valuations reflecting pandemic-driven growth expectations.
  • Increasing competition in some segments like gene sequencing and molecular diagnostics.

Overall, analysts seem positive on TMO’s long-term growth prospects driven by its leading position in life sciences tools and services, strategic acquisitions, and ability to capitalize on secular trends in healthcare and biopharma research. However, the post-pandemic normalization and valuation appear to be key watchpoints for investors. A long-term view considering TMO’s diversified markets and growth initiatives seems warranted.

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Technical Indicators Analysis

Next Week Trading

The recent downward trend in the stock price, as indicated by the declining 20-day TEMA, suggests a potential bearish sentiment in the short term. The RSI value of around 25 on the latest trading day also indicates the stock may be oversold and could see a potential bounce-back in the near future. However, the high ADX value of over 40 suggests a strong trend, which could continue in the short term. Traders may consider a cautious approach and look for opportunities to enter the market on potential dips or pullbacks.

Resistance and Support Levels

The 20-day, 50-day, and 200-day SMAs provide key support and resistance levels. The stock is currently trading below the 20-day and 50-day SMAs, indicating potential support around the 200-day SMA at $536. However, the stock has been facing resistance around the 20-day and 50-day SMAs, which could act as dynamic resistance levels in the near term.

Short Term Investor

The recent downward trend, coupled with the overbought RSI, suggests a potential correction or consolidation in the short term. Short-term investors may consider taking a cautious approach and wait for a better entry point, potentially around the 200-day SMA support level or a pullback towards the 20-day and 50-day SMAs.

Long Term Investor

The overall upward trend, as indicated by the 200-day SMA, suggests a positive long-term outlook for the stock. Long-term investors may consider this as an opportunity to accumulate the stock on potential dips, as the company’s fundamentals and long-term growth prospects appear to be intact.

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Chart of Valuation History

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Revenue Growth and Diversification

Thermo Fisher’s revenues declined 5% in 2023 compared to 2022, primarily due to lower demand for COVID-19 related products. The company has a diversified business model with four segments – Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Biopharma Services. Organic revenue growth, excluding the impact of acquisitions and currency, was 5% in 2023.

Profitability and Margins

GAAP operating income margin declined from 18.7% in 2022 to 16.0% in 2023, primarily due to lower COVID-19 related revenue. Adjusted operating income margin declined from 24.5% in 2022 to 22.9% in 2023, but remained strong. The company was able to offset some of the revenue declines through productivity improvements and pricing actions.

Acquisitions and Inorganic Growth

Thermo Fisher completed two acquisitions in 2023 – The Binding Site Group and CorEvitas LLC, expanding its capabilities in specialty diagnostics and real-world evidence solutions. The company also announced a proposed acquisition of Olink Holding AB, a leading provider of proteomics solutions, to further strengthen its Life Sciences Solutions segment.

Financial Position and Capital Allocation

The company had $8.1 billion in cash and cash equivalents as of December 31, 2023 and generated $8.4 billion in operating cash flow. Thermo Fisher repurchased $3.0 billion of its common stock in 2023 and paid $0.5 billion in dividends. The company has a strong balance sheet with $34.9 billion in total debt and a net debt position of $26.8 billion.

Outlook and Risks

The company expects its GAAP effective tax rate to be between 4-6% in 2024 and its adjusted tax rate to be approximately 10.5%. Key risks include economic and market conditions, currency fluctuations, supply chain disruptions, and regulatory changes.

Overall, Thermo Fisher demonstrated resilience in 2023 despite the decline in COVID-19 related revenue, leveraging its diversified business model, strong financial position, and strategic acquisitions to drive growth and profitability.

Financial Statements Annual 2023 Q2

Strong financial performance

Thermo Fisher reported solid revenue growth of 15% in 2022, driven by robust demand across its business segments, particularly in the Laboratory Products and Biopharma Services and Analytical Instruments segments. This demonstrates the company’s ability to capitalize on growth opportunities and execute its strategic priorities.

Margin pressure

While revenues grew, GAAP operating income margin and adjusted operating income margin declined in 2022 due to lower COVID-19 testing volumes, continued strategic growth investments, and the impact of recent acquisitions. This suggests the company is balancing near-term profitability with long-term growth initiatives.

Successful acquisitions

Thermo Fisher made several strategic acquisitions in 2021, including PPD, a global provider of clinical research services, and PeproTech, a developer of bioscience reagents. These acquisitions have expanded the company’s capabilities and market reach, positioning it for future growth.

Strong cash flow generation

The company generated robust free cash flow of $6.9 billion in 2022, providing ample financial flexibility for investments, acquisitions, and shareholder returns. This consistent cash flow generation is a key strength.

Disciplined capital allocation

Thermo Fisher has demonstrated a balanced approach to capital allocation, investing in organic growth, strategic acquisitions, and returning capital to shareholders through share repurchases and dividends. This prudent financial management is likely to appeal to long-term investors.

Diversified business model

Thermo Fisher operates across multiple end markets, including pharmaceutical, biotech, academic, government, and industrial, which helps mitigate concentration risks and provides stability to its financial performance.

Exposure to global markets

While Thermo Fisher’s international operations expose it to currency and geopolitical risks, the company’s diversified global footprint also positions it to capitalize on growth opportunities in emerging markets.

Overall, Thermo Fisher’s strong financial performance, successful integration of acquisitions, robust cash flow generation, and diversified business model make it an attractive long-term investment proposition for investors focused on sustainable growth and financial stability.

Financial Statements Annual 2022 Q2

Strong revenue and earnings growth

Thermo Fisher’s revenues grew 22% in 2021 compared to 2020, driven by strong demand across its end markets, particularly in pharma/biotech, academic/government, and diagnostics. Adjusted operating income margin also expanded by 13 percentage points to 31%, reflecting the company’s ability to leverage its scale and drive productivity improvements.

Successful acquisitions and integration

Thermo Fisher made several strategic acquisitions in 2021, including PPD, a leading provider of clinical research services, which enhances the company’s offerings to biotech and pharma customers. The company has demonstrated a track record of successfully integrating acquisitions and realizing synergies.

Robust cash flow generation

The company generated $9.5 billion in operating cash flow in 2021, which enabled it to fund $19.4 billion in acquisitions while also returning $2.4 billion to shareholders through dividends and share repurchases. This strong cash flow provides flexibility for future investments and shareholder returns.

Disciplined capital allocation

Thermo Fisher has a history of prudent financial management, maintaining a strong balance sheet with a net debt to EBITDA ratio of around 2.5x. The company has demonstrated a balanced approach to capital allocation, investing in organic growth, strategic M&A, and returning capital to shareholders.

Exposure to attractive end markets

Thermo Fisher is well-positioned to benefit from long-term trends in its end markets, including increased R&D spending in pharma/biotech, growing demand for diagnostic testing, and the expansion of academic and government research funding globally.

Potential risks

The company faces risks related to integration of acquisitions, potential supply chain disruptions, and the uncertain duration and impact of the COVID-19 pandemic on its various business segments. However, Thermo Fisher’s diversified business model, strong market positions, and financial flexibility position it well to navigate these challenges.

Overall, Thermo Fisher’s financial performance, strategic execution, and exposure to attractive end markets make it an appealing long-term investment opportunity for investors focused on the life sciences and healthcare technology sectors.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Total revenues declined 3% year-over-year to $10.345 billion, primarily due to moderation in COVID-19 related revenue as well as lower levels of activity in the bioproduction business. Organic revenue growth (excluding acquisitions, divestitures, and currency effects) was 4%. Revenues declined across all major geographic regions and customer markets compared to the prior year period.

Profitability

GAAP operating income margin increased to 16.1% from 14.6% in the prior year, driven by strong productivity improvements, partially offset by unfavorable business mix and strategic investments. Adjusted operating income margin increased slightly to 22.0% from 21.8% in the prior year. GAAP diluted EPS increased 4% to $3.46, while adjusted EPS increased 2% to $5.11.

Segment Performance

  • Life Sciences Solutions segment organic revenues declined 12%, primarily due to moderation in COVID-19 related revenue and lower bioproduction activity. Segment income margin improved to 36.8% from 32.0%.
  • Analytical Instruments segment organic revenues declined 1%, with strong growth in electron microscopy offset by the impact of strong instrument shipments in the prior year period. Segment income margin decreased to 23.7% from 24.4%.
  • Specialty Diagnostics segment organic revenues were flat, with strong growth in transplant diagnostics, immunodiagnostics, and healthcare market channels offset by decreased demand for COVID-19 products. Segment income margin increased to 26.5% from 25.3%.
  • Laboratory Products and Biopharma Services segment organic revenues declined 1%, with decreased demand in COVID-19 vaccines and therapies partially offset by strong growth in the clinical research business. Segment income margin decreased to 13.0% from 13.8%.

Cash Flow and Liquidity

Free cash flow (operating cash flow less capital expenditures) increased to $908 million from $277 million in the prior year period. The company repurchased $3 billion of its common stock during the quarter. Total debt increased to $35.6 billion, while cash and short-term investments totaled $7.3 billion.

Overall, the financial results reflect the company’s ability to navigate the moderation in COVID-19 related demand through strong operational execution, productivity improvements, and strategic investments. The company continues to deploy capital towards acquisitions and share repurchases to drive long-term shareholder value.

Financial Statements Quarterly 2024 Q1

Strong Operational Performance

The company demonstrated exceptional productivity improvements and good price realization, which led to expansion in operating income margins in Q3 2023 despite lower COVID-19 related revenue. The company’s strategic focus on high-impact innovation, trusted partner status, and unparalleled commercial engine has enabled it to navigate the challenging macroeconomic environment and evolving customer demand.

Resilient Business Model

Thermo Fisher’s diversified portfolio across Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Biopharma Services segments has provided stability and allowed it to offset declines in certain areas with growth in others. The company’s ability to quickly adapt its operations and product mix to changing market conditions is a testament to the resilience of its business model.

Prudent Capital Allocation

The company’s strong cash flow generation and access to capital markets have enabled it to pursue strategic acquisitions, such as The Binding Site Group and CorEvitas LLC, to expand its capabilities and market reach. Thermo Fisher has also been actively repurchasing its shares, demonstrating its confidence in the long-term growth prospects of the business.

Disciplined Financial Management

The company has maintained a strong balance sheet with ample liquidity, providing it with the financial flexibility to navigate potential economic uncertainties. Thermo Fisher’s effective tax planning initiatives, including the release of valuation allowances and tax benefits from foreign exchange losses and intra-entity transactions, have contributed to its favorable tax rate.

Outlook and Risks

The proposed acquisition of Olink Holding AB, a leading provider of next-generation proteomics solutions, is expected to further strengthen Thermo Fisher’s capabilities in this high-growth market. However, the company’s performance remains susceptible to macroeconomic conditions, particularly in China, and the potential for further declines in COVID-19 related revenue. Ongoing restructuring and integration efforts, as well as potential regulatory and legal challenges, should also be monitored by long-term investors.

Overall, Thermo Fisher’s strong operational execution, resilient business model, prudent capital allocation, and disciplined financial management position it well to navigate the current environment and capitalize on long-term growth opportunities, making it an attractive investment proposition for long-term investors.

Financial Statements Quarterly 2023 Q4

Revenue Growth and Organic Growth

Total revenue growth was 3% in Q3 2023 and 6% in the first 6 months of 2023. Organic revenue growth, which excludes the impact of acquisitions and currency, was also 3% in Q3 2023 and 6% in the first 6 months of 2023. The growth was driven by strong demand from pharma/biotech and academic/government customers, partially offset by declines in COVID-19 related revenue and the impact of a challenging macroeconomic environment.

Profitability

GAAP operating income margin decreased from 18.2% in Q3 2022 to 14.8% in Q3 2023, and from 21.2% in the first 6 months of 2022 to 14.7% in the first 6 months of 2023. Adjusted operating income margin decreased from 23.7% in Q3 2022 to 22.2% in Q3 2023, and from 26.6% in the first 6 months of 2022 to 22.0% in the first 6 months of 2023. The margin declines were primarily due to lower COVID-19 related revenue, strategic growth investments, and currency translation effects, partially offset by strong productivity improvements and pricing.

Earnings per Share (EPS)

GAAP diluted EPS decreased from $4.22 in Q3 2022 to $3.51 in Q3 2023, and from $9.83 in the first 6 months of 2022 to $6.83 in the first 6 months of 2023. Adjusted EPS decreased from $5.51 in Q3 2022 to $5.15 in Q3 2023, and from $12.76 in the first 6 months of 2022 to $10.18 in the first 6 months of 2023. The EPS declines were primarily due to the lower operating margins.

Cash Flow and Balance Sheet

Free cash flow was $2.08 billion in the first 6 months of 2023, down from $2.60 billion in the first 6 months of 2022. The company had $6.15 billion in cash and cash equivalents and $35.28 billion in total debt as of September 30, 2023.

In summary, Thermo Fisher Scientific experienced moderating revenue growth and declining profitability in 2023 compared to the prior year, primarily due to lower COVID-19 related revenue and the impact of a challenging macroeconomic environment. However, the company continues to maintain a strong financial position with healthy cash flows and a robust balance sheet.

Financial Statements Quarterly 2023 Q3

Organic revenue growth

The company reported 8% organic revenue growth in Q1 2023, excluding the impacts of acquisitions and currency translation. This demonstrates the underlying strength of the business.

Segment performance

  • Life Sciences Solutions segment saw a 38% decline in organic revenues due to lower COVID-19 related sales, but maintained strong profitability.
  • Analytical Instruments segment had 17% organic growth and expanded margins, driven by strong demand across its businesses.
  • Specialty Diagnostics segment declined 28% organically due to lower COVID-19 testing, but maintained profitability through favorable mix and productivity.
  • Laboratory Products and Biopharma Services segment grew 7% organically and expanded margins on higher sales and productivity.

Margin performance

  • GAAP operating margin declined from 23.9% to 14.6% due to lower COVID-19 related volumes, unfavorable mix, and strategic growth investments.
  • Adjusted operating margin declined from 29.2% to 21.8%, but remained strong.

Acquisition and capital deployment

  • The company acquired The Binding Site Group in Q1 2023 to expand its Specialty Diagnostics segment.
  • The company repurchased $300 million of its own shares in Q1 2023, demonstrating its commitment to returning capital to shareholders.

Cash flow and liquidity

  • The company generated $729 million in operating cash flow and $277 million in free cash flow in Q1 2023.
  • The company has a strong balance sheet with $3.5 billion in cash and access to a $500 million revolving credit facility, providing ample liquidity.

Overall, the financial statements demonstrate Thermo Fisher’s resilience, with diversified revenue streams, strong profitability, and a healthy financial position to continue executing its growth strategy. The decline in COVID-19 related revenues is a headwind, but the company’s core businesses remain strong.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Thermo Fisher is well-positioned for long-term growth

Thermo Fisher is well-positioned for long-term growth, serving an industry with durable, science-driven growth opportunities. The company’s proven growth strategy and execution through the PPI Business System enable it to deliver differentiated short-term performance while strengthening its competitive position.

Positive developments in end markets

The company is seeing positive developments in its end markets, such as improvements in the biotech funding environment and China’s stimulus program, which support the expectation of a modest pickup in economic activity as the year progresses. However, the company is not changing its overall market outlook and is maintaining a cautious stance.

Leveraging trusted partner status with customers

Thermo Fisher is leveraging its trusted partner status with customers to enable their innovation and productivity, as evidenced by collaborations in areas like next-generation sequencing, PFAS research, and rare disease registries. This reinforces the company’s strategic position.

Utilizing generative AI

The company is actively utilizing generative AI as part of the PPI Business System to drive efficiency, productivity, and customer experience improvements across the business.

Capital deployment strategy

Thermo Fisher’s capital deployment strategy, combining strategic M&A and shareholder returns, is being executed well, with the Binding Site acquisition performing ahead of expectations and the Olink acquisition on track to close.

Guidance raise and operational performance

The company’s guidance raise reflects strong operational performance and execution, with the PPI Business System enabling the company to manage costs, fund investments, and deliver margin expansion.

Overall, Thermo Fisher’s focus on innovation, customer partnerships, and operational excellence through the PPI Business System positions it well to navigate market dynamics and continue delivering differentiated performance for shareholders over the long term.

Earnings Call Analysis 2024 Q1

Strong Execution and Operational Discipline

Thermo Fisher has demonstrated strong execution and operational discipline, enabling it to navigate a challenging macroeconomic environment in 2023 while continuing to strengthen its long-term competitive position.

Growth Strategy and Competitive Position

The company’s growth strategy of high-impact innovation, trusted partner status with customers, and unparalleled commercial engine has driven significant share gains across its businesses. This positions Thermo Fisher well to continue delivering differentiated short-term performance and further strengthen its long-term competitive position.

Cost Management and Operational Efficiency

Thermo Fisher has been proactive in managing its cost base and leveraging its PPI (Practical Process Improvement) business system to drive productivity and operational efficiency. This has enabled the company to maintain strong margins despite headwinds from the pandemic-related revenue runoff.

Capital Deployment Strategy

The company’s capital deployment strategy, which combines strategic M&A and returning capital to shareholders, has been disciplined and well-executed. Acquisitions like Binding Site and CorEvitas have strengthened Thermo Fisher’s capabilities and market position.

Guidance and Outlook

Thermo Fisher’s guidance for 2024 suggests continued strong performance, with core organic revenue growth expected to be in the range of -1% to +1%, and adjusted EPS guidance of $20.95 to $22.00. The company’s outlook reflects confidence in its ability to navigate the market environment and continue gaining share.

China Exposure and Regulatory Changes

The company’s exposure to China and the potential impact of regulatory changes in that market is an area to monitor, as China has been a key growth driver for Thermo Fisher historically. However, the company’s long-term outlook for the Chinese market remains positive.

Overall, Thermo Fisher’s consistent execution, innovative product pipeline, and disciplined capital allocation suggest it is well-positioned to continue delivering value for long-term investors, despite near-term market challenges.

Earnings Call Analysis 2023 Q4

Macroeconomic environment is more challenging

The macroeconomic environment is more challenging, with cautious customer spending and weak economic activity in China impacting core market growth, which is now expected to be slightly negative for 2023.

Thermo Fisher expects to continue growing faster than the market

Despite the challenging environment, Thermo Fisher expects to continue growing faster than the market and gaining share in 2023 through its proven growth strategy and PPI Business System.

Long-term outlook for the life sciences industry remains bright

The long-term outlook for the life sciences industry remains bright, with continued scientific advancement and strong demand from the pharma/biotech industry. Thermo Fisher is well-positioned to capitalize on these long-term trends.

Thermo Fisher is actively managing costs

Thermo Fisher is actively managing costs through the PPI Business System to navigate the dynamic environment, while continuing to invest in high-impact innovation and strengthening its capabilities as a trusted partner to customers.

Thermo Fisher’s M&A strategy remains disciplined

Thermo Fisher’s M&A strategy remains disciplined, with recent acquisitions like Binding Site, CorEvitas and the pending Olink acquisition further strengthening its strategic position and long-term growth prospects.

Thermo Fisher’s outlook for 2024

For 2024, Thermo Fisher is providing an early outlook of similar core organic revenue growth as 2023 (around 1%), with the expectation of managing through the run-off of pandemic-related revenues and continuing to leverage its growth strategy and PPI system to deliver similar profitability.

Overall, Thermo Fisher appears to be effectively navigating the near-term challenges while maintaining a focus on its long-term competitive positioning and growth opportunities in the attractive life sciences market.

Earnings Call Analysis 2023 Q3

Macroeconomic environment became more challenging in Q2

The macroeconomic environment became more challenging in Q2, with economic activity in China slowing and businesses becoming more cautious in their spending across the economy. This impacted Q2 results and informed a more moderated outlook for the full year.

Leveraging PPI Business System to manage impact

Thermo Fisher is leveraging its PPI (Productivity, Performance, Improvement) Business System to deliver $450 million of additional cost actions in 2023 to manage the impact of the lower revenue expectations. This demonstrates their ability to actively manage the business.

Long-term fundamentals supporting growth remain unchanged

The long-term fundamentals supporting growth in the Life Sciences industry remain unchanged, despite the near-term challenges. Thermo Fisher is confident in its ability to navigate the current environment and emerge as an even stronger industry leader.

Executing on growth strategy

Thermo Fisher continues to execute on its growth strategy, with strong innovation, deepening its trusted partner status with customers, and leveraging its commercial engine. This positions the company well for long-term success.

Holding itself to a high standard

The company is being critical of its own performance, not patting itself on the back for 2% organic growth in Q2, and is holding itself to a high standard of delivering 2-4 percentage points above the market growth rate.

Disciplined capital deployment approach

Thermo Fisher is actively evaluating M&A opportunities that fit its strategic criteria and can add shareholder value, demonstrating its disciplined capital deployment approach.

Overall, the company appears well-positioned to navigate the near-term macroeconomic headwinds while continuing to invest in its long-term growth drivers. The management team is demonstrating a critical eye on performance and a commitment to delivering differentiated results for shareholders.

Earnings Call Analysis 2023 Q2

Thermo Fisher Maintains Ambitious Guidance Amid Macro Challenges

Thermo Fisher is maintaining its ambitious full-year 2023 guidance despite a slightly more challenging macro environment. This demonstrates the strength of its proven growth strategy and PPI Business System to effectively navigate dynamic conditions.

Diversified Business Driving Core Organic Growth

The company is seeing strong core organic growth across its segments, with particular strength in Analytical Instruments and Specialty Diagnostics offsetting softer trends in Bioproduction in the first half. This highlights the diversification and resilience of Thermo Fisher’s business.

Robust Innovation Pipeline and Customer Partnerships

Thermo Fisher continues to invest heavily in innovation, launching several high-impact new products across its businesses in Q1. This product pipeline and the company’s trusted partner status with customers position it well for long-term growth.

Successful Integration of Recent Acquisitions

The integration of recent acquisitions like The Binding Site is progressing well, and Thermo Fisher is leveraging these capabilities to enhance its customer value proposition and drive revenue synergies.

Effective Capital Allocation and Cost Management

While the macro environment is more challenging, Thermo Fisher is actively managing costs and deploying capital effectively through share buybacks and dividends to create value for shareholders.

Commitment to Environmental, Social, and Governance Priorities

The company remains focused on its environmental, social and governance priorities, including securing agreements to power all current US sites with 100% renewable energy by 2026.

Overall, Thermo Fisher’s strong execution, diversified business model, and strategic investments position it well to navigate the current environment and continue delivering differentiated performance for the long-term investor.

Earnings Call Analysis 2023 Q1

Thermo Fisher’s Proven Growth Strategy Drives Significant Market Share Gains

Thermo Fisher’s proven growth strategy continues to drive significant market share gains across its businesses. The company’s differentiated customer value proposition is further elevating its trusted partner status with customers.

Outstanding Financial Performance in 2022

The combination of the company’s growth strategy and the power of its PPI Business System enabled outstanding financial performance in 2022, exceeding the company’s own ambitious goals despite a dynamic macroeconomic environment.

Strong 2023 Guidance

Thermo Fisher provided strong 2023 guidance, with expectations for 7% core organic revenue growth and adjusted EPS of $23.70. This reflects the company’s confidence in its ability to navigate the expected moderation in COVID-19 testing revenue and vaccines/therapies revenue.

Exceptional Segment Performance

The company’s Analytical Instruments and Laboratory Products and Biopharma Services segments delivered particularly strong performance in 2022, with the latter benefiting from the integration of the acquired PPD business.

Continued Margin Expansion

While Thermo Fisher expects some normalization in growth rates in 2023 compared to the elevated levels seen in 2022, the company remains confident in its ability to drive continued margin expansion through operational excellence and strategic investments.

Expectations for Market Growth

The company’s guidance assumes a return to more normal market growth conditions in 2023, in the range of 4-6%, with the expectation that its core businesses will grow above that level.

Overall, Thermo Fisher appears well-positioned to continue delivering differentiated performance and sustainable value creation for shareholders, leveraging its diversified portfolio, innovation capabilities, and operational excellence.

Earnings Call Analysis 2022 Q4

Thermo Fisher Performing Exceptionally Well

Thermo Fisher is performing exceptionally well, with broad-based strength across its end markets. The company is gaining market share and delivering industry-leading core growth.

Proven Growth Strategy Driving Success

The company’s proven growth strategy, which focuses on innovative new products, leveraging scale in high-growth markets, and delivering a unique customer value proposition, is driving its success.

Strategic Investments Expanding Capabilities

Thermo Fisher is making strategic investments to expand its capabilities and capacity, particularly in areas like bioproduction and pharma services, which are seeing strong customer demand.

PPI Business System Enabling Effective Navigation

The company’s PPI Business System is enabling it to effectively navigate dynamic market conditions, manage inflation, and drive productivity improvements.

Successful Acquisition of PPD

Thermo Fisher’s acquisition of PPD is performing well and delivering high-teens core revenue growth, with the potential for further revenue synergies.

Managing FX Headwinds

While the company is facing some FX headwinds, it is effectively managing these through pricing actions and productivity initiatives, with no net impact on adjusted operating income or EPS.

Raising 2022 Guidance

Thermo Fisher is raising its 2022 guidance, demonstrating the strength of its core business and the company’s ability to execute effectively.

Overall, Thermo Fisher appears to be in a strong competitive position, with a proven strategy, disciplined capital deployment, and an experienced management team that is well-positioned to navigate the current environment and deliver long-term value for investors.

Earnings Call Analysis 2022 Q3

Broad-based strength across the business

Thermo Fisher reported strong performance across all its business segments and end markets, demonstrating the resilience and diversification of its operations.

Execution and operational excellence

The company’s PPI (Productivity and Performance Improvement) business system enables strong operational discipline and allows Thermo Fisher to navigate dynamic market conditions effectively.

Innovation driving growth

Thermo Fisher continues to launch new innovative products across its businesses, which are helping drive growth and strengthen its industry leadership.

Successful integration of PPD acquisition

The PPD clinical research business, acquired in 2021, is performing well and exceeding expectations, with synergies being realized ahead of plan.

Pricing power and inflation management

Thermo Fisher has been able to implement pricing increases to offset higher inflation, demonstrating its ability to pass on costs to customers.

Cautious on macro environment

While the core business remains strong, the company is monitoring macroeconomic conditions and potential headwinds, but believes it is well-positioned to navigate any challenges.

Continued capital deployment

Thermo Fisher remains active in pursuing strategic M&A opportunities, while also returning capital to shareholders through share buybacks and dividends.

Overall, Thermo Fisher appears to be executing well on its proven growth strategy, leveraging its operational excellence and innovation capabilities to drive strong financial performance, even in a potentially challenging macroeconomic environment.

Earnings Call Analysis 2022 Q2

Strong core business performance

Thermo Fisher’s core business is performing very well, with broad-based strength across its end markets like pharma/biotech, academic/government, and industrial/applied. This reflects the company’s proven growth strategy and PPI business system.

Successful integration of PPD

The acquisition of PPD is generating strong returns, with the clinical research business performing ahead of expectations and integrating smoothly. This bodes well for future revenue synergies.

Despite macro challenges like the war in Ukraine, inflation, and COVID lockdowns in China, Thermo Fisher has demonstrated its ability to navigate the landscape and deliver exceptional performance.

Raising guidance

The company has meaningfully raised its full-year revenue and adjusted EPS guidance, reflecting the strength of the core business and the PPD acquisition, even after factoring in the impact of recent macroeconomic dynamics.

Continued innovation and strategic investments

Thermo Fisher continues to invest in high-impact innovation, expand its capabilities in high-growth markets, and enhance its customer value proposition through strategic initiatives like the Moderna collaboration.

Disciplined capital deployment

The company is executing its disciplined capital deployment strategy, including strategic M&A and returning capital to shareholders through share buybacks and dividend increases.

Overall, Thermo Fisher appears to be navigating the current environment well, leveraging its strong competitive position and growth strategy to deliver robust financial performance and position the company for long-term success.

Earnings Call Analysis 2022 Q1

Thermo Fisher’s Core Business Performing Well

Thermo Fisher’s core business is performing very well, with strong growth across its Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Biopharma Services segments. The company is gaining market share.

Leading Role in Pandemic Response

Thermo Fisher played a leading role in the pandemic response, generating over $9 billion in COVID-19 related revenue in 2021. The company is well-positioned to continue supporting customers’ testing needs, though it is taking a derisked approach in its 2022 guidance.

Proven Growth Strategy Driving Strong Performance

The company’s proven growth strategy, consisting of innovative new product development, leveraging scale in high-growth markets, and delivering a unique customer value proposition, continues to drive strong financial performance. Thermo Fisher is making significant investments to support future growth.

Active on the M&A Front

Thermo Fisher was very active on the M&A front in 2021, completing 10 transactions, including the acquisition of PPD. The company sees ample opportunities for further bolt-on acquisitions that fit its strategic criteria and create shareholder value.

Raising 2022 Guidance

The company is raising its 2022 revenue and earnings guidance significantly, reflecting the strength of its core business and an increase in the COVID-19 testing revenue assumption. Thermo Fisher expects 8% core organic revenue growth in 2022.

Commitment to ESG Initiatives

Thermo Fisher remains focused on its environmental, social, and governance (ESG) initiatives, including its commitment to achieve carbon neutrality by 2050 and its community engagement through STEM education programs.

Overall, Thermo Fisher appears to be executing its strategy very well, with a strong core business, leading role in the pandemic response, and disciplined capital deployment. The company’s guidance raise and confidence in its future growth trajectory suggest a bright long-term outlook.

Earnings Call Analysis 2021 Q4

Thermo Fisher’s Core Business Performing Well

Thermo Fisher’s core business is performing very well, with the base business organic growth at 10% in Q3. This strong performance enabled the company to raise its 2021 and 2022 guidance.

Leading Role in Pandemic Response

The company is playing a leading role in the pandemic response, generating $2.05 billion in COVID-19 related revenue in Q3. While this revenue is expected to decline over time, Thermo Fisher sees some durability in areas like increased installed base of PCR instruments.

Continuous Product Innovation

Thermo Fisher is continuously developing innovative new products across its businesses, such as the Applied Biosystems Quantz Studio Absolute Q Digital PCR system and new mass spectrometry instruments. This innovation is helping drive the company’s growth strategy.

Exceptional Customer Experience

The company is leveraging its scale to create an outstanding customer experience, particularly in high-growth emerging markets like Asia-Pacific where it delivered low double-digit growth in Q3.

Capacity Expansion Investments

Thermo Fisher is making significant investments to expand its capabilities and capacity to be an even better partner for customers, including new facilities for bioproduction, pipette tip manufacturing, and pharma services.

Acquisition of PPD

The acquisition of PPD is on track to close by year-end and will establish Thermo Fisher as a leader in the attractive and high-growth clinical research services industry.

Supply Chain Monitoring

While Thermo Fisher is not seeing major supply chain disruptions impacting its results yet, the company acknowledges this is an industry-wide issue it is closely monitoring and managing through its operational excellence.

Overall, Thermo Fisher appears to be executing very well on its growth strategy, leveraging its scale and innovation capabilities to drive strong performance across its diversified business segments. The company’s guidance raises and long-term growth outlook suggest a bright future for this leading life sciences solutions provider.

Earnings Call Analysis 2021 Q3

Thermo Fisher Executing Exceptionally Well on Growth Strategy

Thermo Fisher is executing exceptionally well on its growth strategy, gaining market share across its end markets. The company is benefiting from robust fundamentals in life sciences, strong global economic activity, and its leading role in the pandemic response.

Accelerating Strategic Investments for Future Growth

Thermo Fisher is accelerating strategic investments in innovation, capacity, and capabilities to drive future growth. This includes expanding production facilities for vaccines, therapies, and critical raw materials. These investments are already starting to pay off.

Operational Excellence Driving Financial Results

The company’s PPI (Practical Process Improvement) business system is enabling strong operational execution, productivity gains, and the ability to invest for the long-term while delivering excellent financial results in the near-term.

Prudent Approach to COVID-19 Testing Revenue Outlook

Thermo Fisher is taking a prudent approach to de-risking its COVID-19 testing revenue outlook for the second half of 2021, while still expecting robust demand for its role in supporting vaccines and therapies.

Highly Acquisitive with Pending PPD Acquisition

The company remains highly acquisitive, with the pending PPD acquisition expected to establish Thermo Fisher as a leader in the attractive clinical research services industry. Integration planning is going well.

Commitment to Sustainability

Thermo Fisher is committed to sustainability, recently announcing a goal to achieve carbon neutrality by 2050, aligned with its mission to enable a healthier, cleaner, and safer world.

Overall, Thermo Fisher appears to be executing its strategy exceptionally well, investing for the future, and positioning itself for continued strong performance. The company’s diversified business model, innovation pipeline, and operational excellence provide confidence in its long-term growth prospects.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.