Thermo Fisher Scientific Inc (TMO, Financial) recently experienced a daily gain of 2.85%, yet over the past three months, the stock has seen a decline of 9.28%. With an Earnings Per Share (EPS) of 15.26, investors are contemplating whether Thermo Fisher Scientific (TMO) is modestly undervalued. This article delves into a valuation analysis to address this question and provides insights into the company's financial health and intrinsic value. Read on for a detailed examination of Thermo Fisher Scientific's market position and future prospects.
Company Introduction
Thermo Fisher Scientific Inc (TMO, Financial), a leading provider of scientific instruments, laboratory equipment, and diagnostics consumables, operates through four main segments: analytical technologies, specialty diagnostic products, life science solutions, and lab products and services. With a market cap of $186.40 billion and sales reaching $43.40 billion, the company has established a strong presence in its industry. Comparing Thermo Fisher Scientific's current stock price of $482.39 to the GF Value of $598.74, which estimates the stock's fair value, suggests that the company may indeed be modestly undervalued. This valuation sets the stage for a deeper exploration of Thermo Fisher Scientific's intrinsic value.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. According to this method, Thermo Fisher Scientific appears to be modestly undervalued. The GF Value Line suggests that the stock should ideally trade at or near this calculated fair value. If the price is significantly above the GF Value Line, the stock may be overvalued, potentially leading to poor future returns. Conversely, if the price is significantly below the GF Value Line, it could indicate undervaluation and the potential for higher future returns. With Thermo Fisher Scientific's price below the GF Value, it hints at a promising long-term investment opportunity.
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Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of permanent capital loss. Thermo Fisher Scientific's cash-to-debt ratio of 0.17, while lower than many of its peers in the Medical Diagnostics & Research industry, still reflects fair financial health with a GuruFocus ranking of 6 out of 10. It's important for investors to consider these factors when evaluating the company's investment potential.
Profitability and Growth
A crucial aspect of a safer investment is consistent profitability. Thermo Fisher Scientific has demonstrated this with a decade of profits and an operating margin of 16.81%, ranking better than 80.7% of its industry counterparts. The company's strong profitability, with a ranking of 9 out of 10, is complemented by impressive growth metrics. Its 3-year average annual revenue growth rate of 21.6% surpasses 71.78% of industry companies, indicating a robust value creation potential for shareholders.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another way to gauge a company's profitability. Thermo Fisher Scientific's ROIC of 8.39% slightly exceeds its WACC of 8.21%, indicating the company is generating cash flow effectively and creating value for its shareholders.
Conclusion
In conclusion, Thermo Fisher Scientific (TMO, Financial) presents signs of being modestly undervalued. The company's fair financial standing and strong profitability, alongside its superior growth rankings, make it an attractive proposition for investors. For a more comprehensive look at Thermo Fisher Scientific's financials, interested parties can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
