Another Perfect Play On The Pandemic; Thermo Fisher Scientific
The post-pandemic investing world is filled those “perfectly positioned” companies and Thermo Fisher Scientific (NYSE:TMO) is one of them. The pandemic is a massive global health crisis marked by intensive and widespread testing as well as a race to develop cures. While Thermo Fisher does not actively engage in the production or application of health or medical technology it does supply the equipment (at least some of it) for just about everyone who does. The best part? The company’s revenue growth is still accelerating and supported by core growth as well.
The Pandemic Drives Thermo Fisher Scientific To New Highs
Thermo Fisher reported $10.15 billion in revenue for the 4th quarter. This is up sequentially and from last year with double-digit gains in both comparisons. On a sequential basis the company’s revenue grew by 24% accelerating the YOY gains from 35.8% in the 3rd quarter to 54.5% in the 4th. The revenue is also better than expected, about 1070 basis points better, which is a number we think really highlights the revenue strength. Total revenue was boosted by what the company calls the COVID response, a segment that brought in $3.2 billion or 30% of the net. Adjusting for the COVID response the company’s revenue grew by 7.6%.
Moving down the report, the company’s revenue strength carried through to the bottom line delivering both GAAP and adjusted earnings above the consensus. The GAAP EPS of $6.24 beat by $0.44 while the adjusted $7.09 beat by $0.53. Notably, the GAAP and adjusted EPS are up 151% and 100% from the same time last year driving marked increases in cash and free cash flow.
The full year results are equally good. The company reported a full-year increase in revenue of 26% with larger gains on the bottom line. The full-year GAAP and adjusted earnings grew 74% and 56% despite an increase in business investment. Business investment rose to $1.5 billion for the year and is aimed at high-growth and emerging markets.
"Our performance in 2020 showcased our proven strategy in action, our commitment to our customers' success and our ability to lead in a changing environment. We are continuing to significantly invest in talent, capabilities and infrastructure to build on the value we've created and ensure an even brighter future,” said chairman, president, and CEO Marc Casper.
Thermo Fisher Pays A Growing Dividend
Thermo Fisher pays a very healthy dividend and one on track for a fourth increases, possibly a big one, but there is one question to be answered. Will the company do it? The yield is already so low as to be uninteresting (about 0.17%) when it could be much higher and there isn’t much evidence to suggest management wants to change things. There are details that favor a hefty increase such as the low 4.5% payout ratio, the fortress balance sheet, and a wicked amount of free cash flow so it is not something to be counted out. Just not relied upon.
The Technical Outlook: Thermo Fisher Scientific Is About To Break Out
The technical outlook for Thermo Fisher Scientific is bullish. The stock is trading just beneath resistance at the current all-time-high and showing signs of increasing bullishness. The Q4 report has shares up nearly 2.0% in the early action following the release and the move is supported by the indicators. The MACD is still lagging but the combination of stochastic and MACD is consistent with support and a trend-following entry. As for stochastic, it is showing a weak buy signal at least and one that will be confirmed (as will MACD) when price action breaks above resistnace. Once a new high has been set investors might expect this stock to move up to the $580 to $600 level over the next several quarters.
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