Medical Stocks

Thermo Fisher Scientific Inc Valuation – February 2019 $TMO

Company Profile (excerpt from Reuters): Thermo Fisher Scientific Inc., incorporated on October 11, 1960, develops, manufactures and sells a range of products. The Company provides analytical instruments, equipment, reagents and consumables, software and services for research, manufacturing, analysis, discovery and diagnostics. The Company operates through four segments: Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Services. The Company serves various markets, such as pharmaceutical and biotech; academic and government; industrial and applied; as well as healthcare and diagnostics. The Company serves its customers through its brands, such as Thermo Scientific, Applied Biosystems, Invitrogen, Fisher Scientific and Unity Lab Services.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TMO – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $101,078,782,817 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.71 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 170.43% Pass
6. Moderate PEmg Ratio PEmg < 20 31.11 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.69 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.71 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.01 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $8.07
MG Growth Estimate 13.48%
MG Value $286.31
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $117.04
MG Value based on 0% Growth $68.61
Market Implied Growth Rate 11.30%
Current Price $251.09
% of Intrinsic Value 87.70%

Thermo Fisher Scientific Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.25 in 2015 to an estimated $8.07 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 11.3% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Thermo Fisher Scientific Inc. revealed the company was trading above its Graham Number of $136.3. The company pays a dividend of $0.68 per share, for a yield of 0.3% Its PEmg (price over earnings per share – ModernGraham) was 31.11, which was below the industry average of 51.18, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-44.33.

Thermo Fisher Scientific Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$44.33
Graham Number $136.30
PEmg 31.11
Current Ratio 1.71
PB Ratio 3.69
Current Dividend $0.68
Dividend Yield 0.27%
Number of Consecutive Years of Dividend Growth 1

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $10,640,000,000
Total Current Liabilities $6,223,000,000
Long-Term Debt $17,719,000,000
Total Assets $56,181,000,000
Intangible Assets $40,325,000,000
Total Liabilities $28,595,000,000
Shares Outstanding (Diluted Average) 405,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $12.05
Dec2018 $7.24
Dec2017 $5.59
Dec2016 $5.09
Dec2015 $4.92
Dec2014 $4.71
Dec2013 $3.48
Dec2012 $3.21
Dec2011 $3.46
Dec2010 $2.53
Dec2009 $2.01
Dec2008 $2.25
Dec2007 $1.72
Dec2006 $0.84
Dec2005 $1.36
Dec2004 $2.17
Dec2003 $1.20
Dec2002 $1.73
Dec2001 $0.00
Dec2000 -$0.22
Dec1999 -$1.12

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.07
Dec2018 $5.89
Dec2017 $5.06
Dec2016 $4.63
Dec2015 $4.25
Dec2014 $3.77
Dec2013 $3.18
Dec2012 $2.92
Dec2011 $2.64
Dec2010 $2.11
Dec2009 $1.82
Dec2008 $1.70
Dec2007 $1.44
Dec2006 $1.35
Dec2005 $1.50
Dec2004 $1.37
Dec2003 $0.76

Recommended Reading:

Other ModernGraham posts about the company

Thermo Fisher Scientific Inc Valuation – April 2018 $TMO
8 Best Stocks for Value Investors of the Week – 12/10/16
Thermo Fisher Scientific Inc Valuation – December 2016 $TMO
Thermo Fisher Scientific Inc Valuation – November 2016 $TMO
Thermo Fisher Scientific Inc. Analysis – 2015 Update $TMO

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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