Could Thermo Fisher Scientific Stock Jump To Fresh Highs?

Despite already rising 1.8x from its low in March 2020, at the current price of $460 per share, we believe Thermo Fisher Scientific stock (NYSE: TMO) has further upside potential. TMO stock has increased from $255 to $460 off the recent bottom, a little more than the S&P which increased by around 70% from its lows. Further, the stock is up just around 35% from the level it was at before the pandemic. However, we believe that TMO stock could jump to fresh highs, rising more than 15% to cross its recent high of $532, driven by expectations of strong demand and strong full-year 2020 results despite the pandemic. Our dashboard What Factors Drove 142% Change In Thermo Fisher Scientific Stock Between 2017 And Now? has the underlying numbers behind our thinking.

The stock price rise since 2017-end came due to a 32% jump in revenue from $24.4 billion in FY 2018 to $32.2 billion in FY 2020. Further, net margins shot up from 12.1% to 19.8%, driving a 2.2x rise in EPS from $7.31 in FY 2018 to $16.09 in FY 2020, helped by a 1.4% drop in the outstanding share count.

TMO’s P/E (price-to-earnings) multiple dropped from 26x in 2017 to 20x by 2019 end, but has since jumped to 29x, riding the rally in technology stocks. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus and the resulting lockdowns in early 2020 affected manufacturing activities across a number of industries. However, TMO manufactures analytical laboratory instruments, used in a variety of tests, and the pandemic has led to a surge in demand for these instruments. This is evident from TMO’s full-year 2020 earnings, where revenue jumped from $19.5 billion in FY 2019 to $25.3 billion in FY 2020. As operating expenses didn’t grow at the same rate as revenue, operating margins grew from 23.6% to 30.8%. This helped drive EPS up 1.75x from $9.24 to $16.09 over this period.

Additionally, with the lockdowns being lifted and manufacturing capacity stepping up to pre-Covid levels, we believe the company will see further revenue and margin growth in the medium term. These factors will raise investor expectations further, driving up the company’s P/E multiple. We believe that Thermo Fisher Scientific stock can rise around 15% from current levels, to set fresh highs over $532.

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