Thermo Fisher Earnings: Strong Results Despite More Challenging Environment

We are maintaining our $590 fair value estimate for wide-moat Thermo Fisher TMO following first-quarter results. With COVID-19-related revenue predictably declining, the company delivered results largely in line with our forecast. The firm’s more tempered commentary on the macro environment is unlikely to materially challenge the overall near-term growth profile and, as such, we’re not making any changes to our forecast. We view shares as fairly valued.

With numerous moving parts affecting comparability and obscuring core performance, we didn’t pick up any concerning developments in the quarter despite Thermo noting the overall more challenging environment going forward, albeit maintaining core growth guidance. Some segments, such as bioproduction, are growing slightly slower than in the past few years, but some deceleration was inevitable given the significant level of success Thermo Fisher enjoyed there recently. Difficult comparisons and pulled-forward demand—in addition to a slightly more cautious customer base—are main factors in growth deceleration. Analytical instruments, on the other hand, was remarkably strong in the quarter, helping the overall core business to remain at 7% growth.

Decline in testing accounted for most of the margin decline, but the firm also reported negative effects of foreign exchange and targeted investments, slightly offset by business mix. Management retained its guidance but made up a small shortfall on the operating side by tighter cost control. There are no changes to the rundown in pandemic-related revenue, which should make fluctuations on the margin line less dramatic going forward.