Innovating Toward A Greener Future, Scientific Stellar Leads With Cutting-Edge Proteomics And Sustainability Initiatives

Key Takeaways

• Accelerated investment in innovation, like the Thermo Scientific Stellar mass spectrometer, points to a promising pipeline for revenue and margin growth.
  
• Strategic emphasis on sustainability and eco-conscious initiatives could boost competitiveness and attract a more environmentally aware customer base.
  
• Thermo Fisher's growth may stall due to unpredictable market conditions, shifting COVID capacities, reliance on unstable funding, and uncertain stimulus impact in China.

Catalysts

Provides life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products and biopharma services in the North America, Europe, Asia-Pacific, and internationally.

• Accelerated investments in high-impact innovation, particularly in the analytical instruments sector such as the Thermo Scientific Stellar mass spectrometer, indicate a strong future pipeline of products that can contribute significantly to revenue and margin expansion through leadership in emerging research areas.
  
• Expansion of clinical trial supply services and opening state-of-the-art innovation labs to support pharma and biotech customers suggest an enhanced capability to capture a larger market share in clinical supply chain management, which could lead to increased revenues in the high-growth cell and gene therapy sectors.
  
• The acquisition of Olink and its complementary next-generation proteomic solutions to Thermo Fisher's leading mass spectrometers portfolio points toward an enhanced competitive position in proteomics, a field that is expected to grow significantly. This could impact future revenue growth by providing leading-edge tools for biomarker discovery.
  
• A strategic focus on environmental sustainability, through initiatives like zero waste certification and launch of bio-based film for bioprocess containers, may enhance Thermo Fisher's competitiveness and attractiveness to clients increasingly prioritizing sustainability, thereby positively influencing revenue from a more eco-conscious customer base.
  
• The company's proven growth strategy and PPI Business System leading to differentiated results, combined with a disciplined capital deployment strategy, indicate a strong foundation for operational efficiency and potential for margin expansion and earnings growth, backed by strategic M&A activities such as the Olink acquisition.

Assumptions

• Analysts are assuming Thermo Fisher Scientific's revenue will grow by 5.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.7% today to 16.9% in 3 years time.
• Analysts expect earnings to reach $8.5 billion (and earnings per share of $22.35) by about August 2027, up from $6.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $8.7 billion in earnings, and the most bearish expecting $7.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.3x on those 2027 earnings, down from 36.7x today. This future PE is lower than the current PE for the US Life Sciences industry at 36.4x.
• Analysts expect the number of shares outstanding to decline by 1.02% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 6.53%, as per the Simply Wall St company report.

Risks

• The company's revenue and future growth may be negatively affected by lower-than-expected market conditions that are not as robust as anticipated, potentially leading to less demand for Thermo Fisher's products and services.
  
• Thermo Fisher faces execution risks in transitioning COVID-related capacities to other modalities within its Pharma Services segment, which could impact its revenue and margins if not managed effectively.
  
• The dependence on academic and government funding, which has been described as challenging, could pose a risk to revenue, especially if these sectors experience budget cuts or slower funding disbursements.
  
• In the China market, despite current mid-single digit growth, economic conditions were described as muted. If the anticipated government stimulus does not effectively translate into higher demand for Thermo Fisher's products, the expected revenue growth from this region might not materialize.
  
• The company is undergoing a significant transition with vaccines and therapies revenue runoff, which poses a risk to its Laboratory Products and Biopharma Services segment's revenue and margins if new therapies and tech transfers do not ramp up as expected or face delays.

Valuation

• The analysts have a consensus price target of $631.92 for Thermo Fisher Scientific based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $677.0, and the most bearish reporting a price target of just $565.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $50.3 billion, earnings will come to $8.5 billion, and it would be trading on a PE ratio of 33.3x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of $598.03, the analyst's price target of $631.92 is 5.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.