Thermo Fisher Scientific Inc.

Date: June 20, 2024.

Company’s Overview

Thermo Fisher Scientific Inc. (TMO) is an American multinational scientific instrument manufacturer headquartered in Massachusetts. They operate globally and provide analytical instruments, life sciences solutions, specialty diagnostics, and laboratory, pharmaceutical, and biotechnology services.

Competition

Thermo Fisher operates within the Life Sciences Tools and Services industry, which is composed by:

Revenue Segments

The Company’s net sales proportions by segment for the most recent quarterly report are composed by:

The Company’s Comparison of total net revenues by segment from 2019 till 2023:

Related Risks

Thermo Fisher Scientific navigates a competitive landscape with several challenges. The scientific instruments and life sciences industries are fiercely competitive, demanding constant innovation and competitive pricing to secure market share. Regulatory hurdles are a constant presence, as changes in regulations can impact their products, services, and overall operations. Disruptions in the global supply chain can lead to shortages of materials or components, hindering production and delivery of their instruments and products. Economic downturns pose a risk as decreased research and development spending by their customers can impact revenue. Additionally, as a data-driven company, cybersecurity threats are a major concern. Cybersecurity breaches could disrupt operations, damage their reputation, and lead to data loss.

Financial Performance

Revenues

Revenues from 2020 to 2023:

• TMO’s annual revenue for 2023 was $42.857B, a -4.58% decrease from 2022.
• TMO’s annual revenue for 2022 was $44.915B, a 14.55% increase from 2021.
• TMO’s annual revenue for 2021 was $39.211B, a 21.71% increase from 2020.
• TMO’s annual revenue for 2020 was $32.218B, a 26.14% increase from 2019.

The yearly revenue from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Net Income

Net Income from 2020 to 2023:

• TMO’s annual net income for 2023 was $5.995B, a -13.74% decrease from 2022.
• TMO’s annual net income for 2022 was $6.95B, a -10.03% decrease from 2021.
• TMO’s annual net income for 2021 was $7.725B, a 21.18% increase from 2020.
• TMO’s annual net income for 2020 was $6.375B, a 72.48% increase from 2019.

The yearly net income from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

EPS

EPS from 2020 to 2023:

• TMO’s annual EPS for 2023 was $15.53B, a -12.41% decrease from 2022.
• TMO’s annual EPS for 2022 was $17.73B, a -9.59% decrease from 2021.
• TMO’s annual EPS for 2021 was $19.61B, a 21.8% increase from 2020.
• TMO’s annual EPS for 2020 was $16.1B, a 74.24% increase from 2019.

The yearly EPS from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Free Cash Flow

Free Cash Flow from 2020 to 2023:

• TMO’s annual free cash flow for 2023 was $6.927B, a 0.23% increase from 2022.
• TMO’s annual free cash flow for 2022 was $6.911B, a 1.8% increase from 2021.
• TMO’s annual free cash flow for 2021 was $6.789B, a -0.38% decrease from 2020.
• TMO’s annual free cash flow for 2020 was $6.815B, a 68.4% increase from 2019.

The yearly free cash flow from 2009 till 2023 is:

**The 2024 and 2025 values are the expected by the analysts

Financial Strength

Shares Outstanding

On November 14, 2023, TMO’s board authorised a share repurchase program of up to $12B of its common shares.

The positive aspect is the decrease in shares outstanding by almost 10% since 2009. This reduces the number of shares competing for profits, potentially leading to higher earnings per share (EPS) in the future.

Assets/Liabilities

Their asset-to-liability ratio of 0.97 falls significantly below the recommended 2:1 level. This suggests they have almost the same amount of debt as assets, limiting their ability to absorb financial shocks or invest heavily in growth initiatives.

Current Ratio

Similarly, their current ratio of 1.7 is well above the recommended level of 1, signifying that their current assets (like cash and inventory) are sufficient to cover their current liabilities (like accounts payable) in the short term. This ensures they can meet short-term obligations without needing immediate additional borrowing or asset sales.

Net Debt

However, a significant concern arises with their net debt situation. At $28.6 billion, it’s a substantial amount of debt. Even more concerning is the 77.81% increase since 2019, suggesting a growing reliance on debt to finance operations. This rising debt burden also constitutes a relatively high 55.5% of their total liabilities

Valuation

Based on the analysis performed, TMO’s price is significantly overvalued. As key metrics, we considered 9% Required Rate of Return (RRR) and 20% margin of safety. Note that in the analysis we take into consideration also the cash and cash equivalents and the total debt.

The company has received a range of ratings from buy to sell. Specifically, there were 16 buy, 3 overweight, 9 hold, 0 underweight and 0 sell ratings. The consensus rating leans toward overweight.

Thermo Fisher Scientific stands as a leader in the life sciences tools and services industry. Their impressive revenue growth (10-year CAGR of 9.76%) and strong profitability metrics (net margin of 14.2% vs industry median of 10.96%) showcase their operational strength. They’ve also demonstrated a commitment to shareholder value by reducing shares outstanding (almost 10% decrease) and achieving a solid EPS growth (**10-year CAGR of 12.67%). Their financial health is decent, with good asset-to-liability (1.88) and current ratios (1.7).

However, these strengths are overshadowed by a concerning valuation. Their stock appears overvalued according to the analysis performed (while it also has a P/E ratio of 38.43 vs industry median of 32.87). The market might be overly optimistic about future growth prospects, potentially leading to a price correction. Furthermore, their gross margin (40.4% vs industry median of 48.54%) indicates operational inefficiencies compared to peers, and their ROIC (8.07%) falls below our investment threshold. The significant and increasing net debt ($28.6 billion, up 77.81% since 2019) raises concerns about their long-term financial health, especially considering it constitutes over half of their liabilities.

Overall, Thermo Fisher Scientific presents a mixed picture. They are a leader in their industry with strong financial performance. However, the overvalued stock and increasing debt burden are significant red flags. Investors seeking financially strong companies with a reasonable valuation might be better off looking elsewhere. For those willing to tolerate higher risk with the hope of capitalising on their leadership position and growth potential, Thermo Fisher could be an option, but careful due diligence and a clear understanding of the valuation disconnect are crucial before investing.

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Disclaimer

Please note that I am not a licensed financial advisor and the information provided here should not be construed as financial advice. I am simply sharing my understanding of the topics based on my research and personal experiences. It is always advisable to consult with a qualified financial advisor before making any investment decisions.

The information I provide is based on publicly available sources and my own interpretations. I strive to provide accurate and up-to-date information, but I cannot guarantee the correctness or completeness of the information.

Any opinions expressed here are my own and do not necessarily reflect the views of any other individual or organisation.

Please use your own judgement and conduct your own research before making any investment decisions.