Today’s recommendation provides analytical instruments, equipment, reagents and consumables, software and services for research, manufacture, analysis, discovery and diagnostics. The company’s shares were recently upgraded to buy from neutral at Goldman Sachs.
Thermo Fisher Scientific (TMO)
from The Complete Investor
Thermo Fisher Scientific (TMO) is the world’s largest manufacturer of equipment essential to biological companies, from drug makers to genetic engineering firms. It has a 16% share of this massive market, which is conservatively estimated at $75 billion.
In 2014’s first quarter the company will complete its acquisition of biotech company Life Technologies. The purchase will be immediately accretive and should help profits grow by more than 15% in 2014, to nearly $7.00 a share. Going forward, the acquisition should raise annual growth several percentage points to 13-15%. With the market still viewing Thermo Fisher as a 10% grower, the P/E will expand as the company’s superior prospects become evident.
Life Technologies will make Thermo Fisher the leading genomics company and broaden its service and instrument offerings, especially small instruments. It also will expand the company’s footprint in Asia, the world’s fastest-growing biotech market.
Over the past five years Thermo Fisher’s research spending has grown at a double-digit clip and produced a broad range of products, including ones in the rapidly growing handheld-product market. Examples are a handheld instrument to identify narcotics and an instrument that identifies asbestos embedded in various materials.
As a major outsourced company in biotech, which is health care’s fastest-growing segment, Thermo Fisher is squarely in the rarefied ranks of companies that promote better health in a cost-effective way. Products differentiated by genomes—i.e., medicines tailored to an individual’s unique genetic makeup—are slated to become an important path to cost savings. As the leading supplier of DNA-sequencing equipment, Thermo Fisher will be a major player in this area.
While the Life purchase will add debt to Thermo Fisher’s balance sheet, the free cash flow yield will still top 5% and go towards repurchasing shares and raising the dividend.
Stephen Leeb, PhD., The Complete Investor, www.completeinvestor.com, 866-833-2070, February 2014