TMO Shares Rally 14% In A Week, Now Is Not The Time To Buy The Stock

We believe there is a near-equal mix of good and bad in TMO stock given its overall Moderate operating performance and financial condition. But keeping in mind its High valuation, we think that the stock is Unattractive. Here is our multi-factor assessment.

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Let’s get into details of each of the assessed factors but before that, for quick background: With $198 Bil in market cap, Thermo Fisher Scientific provides life sciences solutions, analytical instruments, specialty diagnostics, and laboratory products worldwide, including reagents, immunodiagnostic kits, and laboratory refrigerators and freezers.

[1] Valuation Looks High

This table highlights how TMO is valued vs broader market. For more details see: TMO Valuation Ratios

[2] Growth Is Weak

• Thermo Fisher Scientific has seen its top line grow at an average rate of 0.3% over the last 3 years
• Its revenues have grown 2.0% from $42 Bil to $43 Bil in the last 12 months
• Also, its quarterly revenues grew 3.0% to $11 Bil in the most recent quarter from $11 Bil a year ago.

This table highlights how TMO is growing vs broader market. For more details see: TMO Revenue Comparison

[3] Profitability Appears Moderate

• TMO last 12 month operating income was $7.9 Bil representing operating margin of 18.2%
• With cash flow margin of 17.5%, it generated nearly $7.6 Bil in operating cash flow over this period
• For the same period, TMO generated nearly $6.6 Bil in net income, suggesting net margin of about 15.2%

This table highlights how TMO profitability vs broader market. For more details see: TMO Operating Income Comparison

[4] Financial Stability Looks Strong

• TMO Debt was $35 Bil at the end of the most recent quarter, while its current Market Cap is $198 Bil. This implies Debt-to-Equity Ratio of 17.8%
• TMO Cash (including cash equivalents) makes up $6.4 Bil of $101 Bil in total Assets. This yields a Cash-to-Assets Ratio of 6.3%

[4] Downturn Resilience Is Moderate

TMO saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• TMO stock fell 35.3% from a high of $667.24 on 31 December 2021 to $431.41 on 27 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $624.21 on 10 September 2024 , and currently trades at $524.96

 
2020 Covid Pandemic

• TMO stock fell 24.9% from a high of $340.05 on 22 January 2020 to $255.30 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 27 April 2020

 
2008 Global Financial Crisis

• TMO stock fell 53.9% from a high of $62.70 on 15 August 2008 to $28.90 on 20 November 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 18 May 2011

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