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Thermo Fisher's Focus on Emerging Markets and Profitability Sets the Stage for Growth

A global reach and broad product offerings underlie the company's narrow moat.

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Thermo Fisher's (TMO) customer approach is compelling to its customers. The company takes the mundane work of inventory management, procurement, and other supply chain management processes out of its laboratory customers' hands to allow them to focus on research, while improving productivity and providing them with savings. This approach has successfully worked with biopharma clients, as Thermo Fisher's top pharma accounts have grown north of company averages over the past few years. Now Thermo Fisher is applying the same approach across other customer end markets. The company is targeting industrial and academic clients with the same value proposition, and considering the savings of the one-provider model with global presence and robust product breadth, we believe it is a good strategic partner for clients across the spectrum. We appreciate the relative simplicity of the one-stop-shop approach, which has been a key pillar to our moat assessment. The strength of this model is particularly evident in Thermo Fisher's clinical trials logistics segment, where the company is the leading provider of trial service offerings. Thermo Fisher can support every step of a clinical trial, from manufacturing of pharmaceuticals to storage and transportation. This has resulted in virtually exclusive relationships with firms such as Merck, Eli Lilly, Celgene, and others for trial support.

Product Portfolio Positioned for Continued Growth
In addition to the unmatched distribution infrastructure, the company has a strong analytical product portfolio that further allows for client penetration and cross-selling opportunities. Thermo Fisher has launched a number of successful products over the past year, particularly in mass spectrometry. The Q Exactive mass spectrometer launched this year has already exceeded both the firm's and our initial expectations and is on track to deliver more than $100 million in sales despite its hefty price tag and challenging end market conditions. Thanks to the Dionex acquisition, its new liquid chromatography offerings also have the potential to improve Thermo Fisher's competitive standing. The company points out that its research and development as a percentage of total revenue has increased from 4.1% in 2009 to 4.7% targeted for 2012--although we note that a big portion of this increase is simply due to a shift in mix aided by acquisitions.

Alex Morozov does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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