Thermo Fisher Scientific (TMO, Financial) is a well-known name in the pharmaceutical and biotech industries that has witnessed remarkable growth in 2020, leveraging on its capacity to extend support amidst the pandemic.
The company saw robust growth across all its businesses, including BioProduction, Pharma Services, Biosciences and the company's Research and Safety Market Channel. Thermo Fisher's ability to rapidly scale up manufacturing to support the volumes needed enabled the company to conduct Covid-19 testing at an unprecedented level.
Moreover, the company established a joint venture to set up biological drug development and manufacturing in China to focus on organic growth of its bioproduction, pharma services and biosciences businesses.
The management also announced plans to make plasmid DNA for cell and gene therapies in California. Such actions make me optimistic that Thermo Fisher is not resting on its laurels but is capitalizing on recent success to further drive future growth.
Recent financial performance
Thermo Fisher reported a string of good results for 2020. For the most recent fourth quarter result, the company reported a top-line of $10.55 billion, which was a staggering 54.49% growth as compared to the $6.83 billion in revenue reported in the fourth quarter of 2019. The company cruised past the analyst consensus estimate of $9.58 billion.
Revenues translated into a gross margin of 52.67% and an operating margin of 29.29%, which was higher than the corresponding quarter of the previous year.
Thermo Fisher reported net income of $2.50 billion and adjusted earnings per share (EPS) of $7.09, again surpassing the average Wall Street expectation of $6.56. The company generated $3.34 billion in the form of operating cash flows and spent $626 million in investing activities, which left the management with plenty of free cash to continue with its strategy of carrying out bolt-on acquisitions.
Strategic bolt-on acquisitions
The company's reserves and strong cash generation have enabled Thermo Fisher to make key strategic acquisitions.
In February 2021, the company completed its acquisition of Mesa Biotech, a point-of-care molecular diagnostics player. The platform provided by Mesa Biotech will enable rapid and accurate testing, delivering results in 30 minutes, which helps the company to deliver a broader menu of tests to meet increasing demand. As per the management, Mesa Biotech is expected to add revenue of approximately $200 million in 2021.
Apart from this, Thermo Fisher recently acquired the viral vector manufacturing business from Novasep for 725 million Euros ($863 million) in cash. The business provides manufacturing services for vaccines and therapies to biotechnology companies and large biopharma consumers. This acquisition builds on the company's efforts to expand its capabilities for cell and gene vaccines and therapies globally.
Additionally, Thermo Fisher entered into a partnership with CSL Limited (ASX:CSL, Financial) to expand its biologics capacity to meet the growing demand in this space. These acquisitions and partnerships are expected to provide potential upside to the future growth prospects of the company.
Covid-19 related developments
Thermo Fisher has established a unique leadership in Covid-19 testing by significantly expanding its portfolio of pandemic-related products, including Amplitude solution for high-throughput PCR (polymerase chain reaction) based testing and TacCheck PCR test for asymptomatic health surveillance. This has resulted in the company generating $6.6 billion of Covid-19 related revenue, which continues to accelerate owing to strong consumer demand.
In March 2021, the management developed and gained regulatory approval to launch TaqPath Covid-19 Combo Kit, providing high-quality PCR-based tests at a massive scale. In addition, the company recently launched an in-air SARS-CoV-2 surveillance solution called AerosolSense Sample. The solution delivers less time-consuming and highly accurate insight about the presence of any in-air pathogens and is specifically validated for detecting the SARS-CoV-2 pathogen.
In the process of meeting the demand for PCR testing equipment, the company has increased the size of its installed base, driving sales of consumables as well as other testing applications beyond the Covid-19. Thermo Fisher is also actively engaged in projects to help, develop and produce vaccines that have led to a $500 million revenue in Covid-19 vaccine and therapy. The management expects this number to increase to $1 billion in 2021.
Valuation
As we can see from the above chart, Thermo Fisher's share price has gone up by more than 50% in the past 12 months. The company's valuation multiples also appear fairly reasonable as it is trading at an enterprise-value-to-revenue multiple of around 6 and a price-earnings ratio of around 29, which are both in the median range with respect to the medical diagnostics and research industry.
Thermo Fisher has a fantastic net margin of 19.79%, and its accelerated revenues from Covid-19-related development, aggressive acquisitions and its efforts in vaccine manufacturing services indicate good growth potential. Overall, I believe that given all these factors, the stock is a buy at current levels.
Disclosure: No positions.
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