We don’t typically glean much value from corporate slogans, but Thermo Fisher Scientific (TMO) bills itself as “world leader in serving science,” explains Rich Moroney, editor of Dow Theory Forecasts.
The phrase fits, and in part explains the appeal of this company. Thermo Fisher need not chase a risky drug, create a new and better power cell, or pour investment dollars into a substance that could turn into either a miracle lubricant or a massive waste of time.
Instead, Thermo Fisher provides equipment and supplies designed to help others swing for the fences. Longtime readers will recognize our general preference for sellers of pickaxes rather than miners, and Thermo Fisher fits such an approach.
The company’s efforts to support makers of coronavirus tests and vaccines generated most of its 54% sales growth in the December quarter and 26% growth for full-year 2020.
Per share profits nearly doubled in the December quarter and jumped 58% for the year. Impressive, but not repeatable, as few companies benefited more from the pandemic than Thermo Fisher, which found itself in the right place at the right time in 2020.
At its peak, Thermo Fisher produced 20 million coronavirus test kits a week, worked on more than 250 virus-related projects, and provided masks to at least 7,000 customers.
We consider consensus projections for 12% profit growth in 2021 an indicator of solid organic growth, given last year’s inflated comparison. Analysts target a profit decline of 8% in 2022 and a gain of 8% in 2023, reflecting the likely dip, though not disappearance, of demand for covid tests.
Coming out of the pandemic, Thermo Fisher expects to exceed its previous long-term revenue-growth target of 5% to 7%. In response to the pandemic, the company improved its production and distribution capabilities, increased its research capacity, and enlarged its customer base — gains in scale that should translate into post-coronavirus competitive advantages.
While drugmakers have become Thermo Fisher’s most high-profile clients in an era of vaccination fascination, the company’s overall business mix remains fairly diverse.
About 40% of revenue comes from drug and biotech fi rms, another 25% from makers of diagnostic tests and other healthcare companies. Industrial firms and academic/government labs account for the rest of the company’s revenue.
These last two end markets suffered in 2020, hurt by the closure of labs and factories, as well as the general economic downturn. However, both industrial and academic/government revenue rose in the December quarter, an encouraging omen.
The stock has gained 45% over the past 12 months despite a slight decline so far in 2021. Yet the valuation remains appealing at 21 times projected 2021 earnings, 13% below the median for the health-care sector and 36% below the median life-sciences company. With an appealing blend of growth and value, Thermo Fisher remains our top pick in the health-care sector.
