Thermo Fisher Scientific Inc. Annual Valuation – 2014 $TMO

thermo-fisher-scientificBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor with High Dividend Yields.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Thermo Fisher Scientific (TMO) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Thermo Fisher Scientific Inc. (Thermo Fisher) is engaged in serving science. The Company operates in three segments: Analytical Technologies, Specialty Diagnostics and Laboratory Products and Services. The Company serves its customers through three brands: Thermo Scientific, Fisher Scientific and Unity Lab Services. Thermo Scientific is its technology brand, offering customers a range of high-end analytical instruments, as well as laboratory equipment, software, services, consumables and reagents to enable laboratory workflow solutions. In March 2014, General Electric Co announced that its GE Healthcare, a unit of General Electric Company has acquired cell culture (sera and media), gene modulation and magnetic beads businesses from Thermo Fisher Scientific Inc.
TMO Chart

TMO data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $121.38
MG Value $170.58
MG Opinion Undervalued
Value Based on 3% Growth $64.24
Value Based on 0% Growth $37.66
Market Implied Growth Rate 9.45%
Net Current Asset Value (NCAV) -$44.35
PEmg 27.40
Current Ratio 0.95
PB Ratio 2.35

Balance Sheet – 6/28/2014

Current Assets $5,944,400,000
Current Liabilities $6,235,600,000
Total Debt $12,502,000,000
Total Assets $44,313,400,000
Intangible Assets $35,060,900,000
Total Liabilities $23,654,800,000
Outstanding Shares 399,350,000

Earnings Per Share

2014 (estimate) $6.87
2013 $3.50
2012 $3.43
2011 $2.65
2010 $2.52
2009 $2.01
2008 $2.27
2007 $1.76
2006 $0.82
2005 $1.21
2004 $1.31

Earnings Per Share – ModernGraham

2014 (estimate) $4.43
2013 $3.08
2012 $2.77
2011 $2.38
2010 $2.12
2009 $1.82

Dividend History
TMO Dividend Chart

TMO Dividend data by YCharts


Thermo Fisher Scientific does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, the lack of a long dividend history, and the high PEmg ratio while the Enterprising Investor is concerned with the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of ModernGraham’s valuation of General Electric (GE) and ModernGraham’s valuation of Agilent Technologies (A).  From a valuation side of things, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.12 in 2010 to an estimated $4.43 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 9.45% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Thermo Fisher Scientific (TMO)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Thermo Fisher Scientific (TMO) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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