For Thermo Fisher Scientific Inc. (NYSE: TMO), a leading player in the medical diagnostics and life sciences market, 2020 was a busy year as the company expanded capacity and rolled out new products in response to the coronavirus pandemic. The market will be closely following its performance this year, considering the improvement in the COVID situation and softening demand for testing kits.
Is TMO a Buy?
Shares of the Massachusetts-headquartered firm have been on an upward spiral for more than a year. If experts’ bullish outlook is any indication, the stock has the potential to break the $500-mark and gain as much as 13% in the next twelve months. That, combined with the moderation in value in recent weeks, has created a unique buying opportunity that most investors wouldn’t want to miss.
The company dominates the diagnostics and life-sciences market and enjoys a clear advantage over rivals like Agilent Technologies Inc. (NYSE: A), thanks to its impressive market share and growing product portfolio. Though the business experienced a slowdown in the early days of the pandemic, a surge in the demand for COVID diagnostics helped it regain momentum quickly. Last year, the company successfully launched many new products including coronavirus diagnostic kits.
From Thermo Fisher’s Q1 2021 earnings conference call:
“We’ve expanded capacity. We have alleviated supply chain issues across the industry. And we put ourselves in a position to have a bigger business coming out of the pandemic. And then finally, we were a tiny player in specimen collection, and we’ll have a nice business on things like viral transport media, obviously, at a much smaller level than the pandemic. I mean it’s been unprecedented, the demand for viral transport media during the pandemic, but we built low-cost capacity in two countries to be able to serve the world.”
In the Pipeline
Supported by the steady cash flow, the company is well-positioned to take forward its growth initiatives including M&A deals and capacity expansion. Recently, it inked a pact to buy contract research organization PPD for $17.4 billion, a move aimed at better serving customers in the rapidly growing pharma-biotech end-market that accounts for nearly half of annual revenues.
Meanwhile, being a top supplier of diagnostics products across the globe and having tapped into most of the addressable market, Thermo Fisher might need to explore new avenues for expansion. Also, demand will likely moderate post-COVID, which in turn could weigh on the company’s top-line, though the impact would be partly offset by the strength of the core business.
Good Start to FY21
Thermo Fisher’s quarterly earnings have beaten Wall Street’s estimates consistently for more than a decade. In the first three months of fiscal 2021, revenues jumped 59% to about $10 billion and topped expectations even as all the key business divisions grew in double digits. Consequently, adjusted earnings more than doubled to $7.21 per share.
The stock is currently trading close to the record highs seen in the final weeks of 2020, after making steady gains since early last year. It closed Friday’s regular session lower but stayed above the 52-week average. TMO has grown about 40% in the past twelve months.