Is Thermo Fisher Scientific Inc. Destined for Greatness?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Thermo Fisher Scientific (NYSE: TMO  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Thermo Fisher Scientific's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Thermo Fisher Scientific's key statistics:

TMO Total Return Price Chart

TMO Total Return Price data by YCharts

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

22.4% vs. 29.3%


Improving EPS



Stock growth (+ 15%) < EPS growth

144.1% vs. 47.3%


*Period begins at end of Q3 2010. Source: YCharts 

TMO Total Return Price Chart

TMO Return on Equity (TTM) data by YCharts

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity



Dividend growth > 25%



Free cash flow payout ratio < 50%



*Period begins at end of Q3 2010. Source: YCharts

How we got here and where we're going
Thermo Fisher Scientific earns a rather mediocre four out of nine passing grades on our test today, but there are certainly opportunities for the company to grab some low-hanging fruit next year. One of its failing grades was only awarded because net income narrowly surpassed free cash flow during our three-year-tracking period -- however, Thermo-Fisher's nominal free cash flow has been consistently higher than its net income throughout the past three years. Thermo-Fisher's shareholders have enjoyed robust growth over the past three years, and shares have actually surpassed bottom-line growth as investors flock to the increasingly diverse diagnostics company. But does that mean Thermo Fisher will keep outperforming in the future? Let's dig a little deeper to find out.

The global diagnostic market has boomed over the past few quarters, so diagnostic leaders Thermo Fisher and Illumina (NASDAQ: ILMN  ) have both gained significant traction on the back of rising demand for life-sciences equipment. Fool contributor Maxx Chatsko points out that the acquisition of genomic-analysis device and service provider Life Technologies brought Thermo-Fisher into the battle of genome-sequencing systems, which is already propelling costs for a complete genome sequencing below $1,000. While Life Tech's top-of-the-line machine is currently running behind Illumina's in terms of whole-genome sequencing costs, it's certainly conceivable that the tide will again turn in this year or the next, now that Life Tech has Thermo-Fisher's deeper pockets to draw on. The Life Technologies deal could ultimately result in cost synergies of $250 million per year, which is about as much as Illumina's spent on R&D over the past four quarters.

Illumina currently holds the lead thanks to the newly launched HiSeq X Ten sequencing system, which promises to sequence "at scale" by aggregating 10 HiSeq X machines together. The system boasts the ability to sequence up to 20,000 human genomes a year. Illumina also launched the NextSeq 500 desktop sequencer, which will compete head-to-head with the low-cost Ion Torrent desktop sequencer developed by Life Technologies. Fool contributor Sean Williams notes that Illumina also offers a low-price sequencer, the MiSeq, which is capable of handling cloud-based data to formulate decoding.

In nongenomic news, Thermo-Fisher announced the divestment of its HyClon cell culture, gene modulation, and magnetic beads business, which generated total revenues of around $250 million in 2013, for just over $1 billion earlier this month. Meanwhile, the company also has a $233.6 million contract with the Department of Defense, which is expected to run end in the middle of this year.

Putting the pieces together
Today, Thermo Fisher Scientific has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Looking for other long-term growth stocks?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2811787, ~/Articles/ArticleHandler.aspx, 8/29/2015 10:42:37 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Alex Planes

Alex Planes specializes in the deep analysis of tech, energy, and retail companies, with a particular focus on the ways new or proposed technologies can (and will) shape the future. He is also a dedicated student of financial and business history, often drawing on major events from the past to help readers better understand what's happening today and what might happen tomorrow.

Connect with Alex on LinkedIn or Twitter for more news and insight:

View Alex Planes's profile on LinkedIn

Today's Market

updated 13 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:03 PM
TMO $126.52 Down -1.39 -1.09%
Thermo Fisher Scie… CAPS Rating: ****
ILMN $201.70 Down -0.24 -0.12%
Illumina CAPS Rating: ****