Thermo Fisher Scientific: Microscopic Signs Of Growth Emerging

Core Viewpoint - Thermo Fisher Scientific is expected to experience near-zero revenue and earnings growth in 2024, primarily due to the decline in COVID-19 testing revenue becoming immaterial. However, renewed funding for biotech startups and stimulus measures in China may help revive growth in the short term. The long-term growth thesis remains intact, driven by increasing demand in healthcare, semiconductor, and battery manufacturing sectors. The stock price is near the fair value estimate, leading to a downgrade to Hold despite the company's strong fundamentals [9][19]. Financial Performance - The organic sales growth rates for Thermo Fisher have shown a declining trend, with 1Q23 at -8% and 2Q24 at -1%. The company has experienced varying growth across its segments, with Life Sciences and Specialty Diagnostics showing improvement, while Analytical Instruments and Lab Products and Services have bottomed out [2][21]. - The 2024 guidance indicates a sales outlook of $43.4-$44.3 billion, reflecting only a 0.1% increase at the midpoint. EPS guidance has been raised to $21.29-$22.07, up just 0.5% [10]. Growth Drivers - China is emerging as a growth driver, with a government focus on "High-Quality Growth" and a year-long program to stimulate consumption and investment. This is expected to positively impact Thermo's sales in 2025, with reported sales growth in China at "mid-single digits" in 2Q 2024 [3][14]. - The pace of new clinical trial authorizations has increased significantly, with 25,572 new trials registered in 2024 through July, indicating a potential boost in demand for Thermo's products and services [15]. Acquisition and Debt Management - The acquisition of Olink for $3.1 billion has closed, expected to contribute$200 million in sales in 2024. Olink's focus on proteomics aligns with Thermo's existing product offerings, creating potential synergies [14][25]. - Thermo Fisher's debt profile remains stable, with a debt/EBITDA leverage of 3.3x gross and 2.5x net. The company ended the quarter with $8.8 billion in cash and investments, although$3.1 billion has been allocated for the Olink acquisition [12][18]. Valuation - The DCF valuation for Thermo Fisher is $577.58 per share, reflecting a slight decrease from the previous quarter. The stock is currently trading at a P/E of 26.3, which is at the high end for a company with an EPS growth rate of around 13% [7][19].