Thermo Fisher Scientific keeps growing earnings by cutting costs

We think the healthcare industry will enjoy great success over the next decade. But due to the nature of the business, results will vary widely and unpredictably from one company to another. A volatile market like the one we expect for healthcare stocks will include winners and losers. We expect Thermo Fisher Scientific to be among the big winners.

This firm’s shares are now up 82.5% for our subscribers since we first recommended the stock in the May 2020 issue of Power Growth Investor at $325.83 a share. We still think it has room to move higher. It’s a Power Buy.

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The stock trades at 27.4 times the company’s 2024 earnings forecast.

THERMO FISHER SCIENTIFIC INC. (Symbol TMO on New York; www.thermofisher.com) is a leading manufacturer of scientific instruments, laboratory equipment, diagnostic consumables, and life science reagents.

In the quarter ended March 30, 2024, Thermo Fisher’s revenue fell 3.4%, to $10.35 billion from $10.71 billion a year earlier. The decline was partly due to lower revenue from COVID-related sales of testing equipment as the pandemic eased.

Excluding one-time items, per-share earnings climbed 1.6%, to $5.11 from $5.03. The company was able to successfully cut costs.

Meanwhile, Thermo Fisher just raised its quarterly dividend by 11.4% with the April 2024 payment, to $0.39 a share from $0.35. The stock now yields 0.3%.

The company continues to make savvy acquisitions to help spur growth. For instance, in January 2023, the company completed the acquisition of The Binding Site Group, a global leader in specialty diagnostics. It paid the seller, a group led by European private equity firm Nordic Capital, $2.6 billion.

Serving clinicians and laboratory professionals worldwide, The Binding Site provides specialty diagnostics and instruments to improve the diagnosis and management of blood cancers and immune disorders.

The firm is headquartered in Birmingham, U.K., and has more than 1,100 employees globally. The Binding Site had annual sales of more than $220 million in fiscal 2022 and is expected to add $0.07 a share to Thermo Fisher’s annual earnings.

Growth Stocks: Another acquisition should add even more potential for Thermo Fisher Scientific

More recently, in October 2023, Thermo Fisher agreed to buy Olink Holding AB (Nasdaq symbol OLK). Based in Sweden, this firm makes lab equipment that helps pharmaceutical firms analyze how proteins interact with cells.

Thermo Fisher will pay $3.1 billion in cash for Olink when it completes the purchase.

The new operations will add $200 million to Thermo Fisher’s annual revenue of $43.5 billion. It also expects eliminating overlapping operations will let it realize annual savings of $125 million by the end of the fifth year.

Thermo Fisher has a relatively high p/e and low yield. That combination leaves the company’s shares vulnerable to a sharp setback on bad corporate news or overall stock market weakness.

Still, the company’s success with health technology could produce substantial gains.

Recommendation in Power Growth Investor: Thermo Fisher Scientific Inc. is a buy.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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