{"id":30590,"date":"2023-07-02T23:04:16","date_gmt":"2023-07-03T03:04:16","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/thermo-fisher-a-master-compounder-in-healthcare-nysetmo\/"},"modified":"2023-07-02T23:04:19","modified_gmt":"2023-07-03T03:04:19","slug":"thermo-fisher-a-master-compounder-in-healthcare-nysetmo","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=30590","title":{"rendered":"Thermo Fisher: A Master Compounder In Healthcare (NYSE:TMO)"},"content":{"rendered":"
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Introduction<\/h2>\n

I own two healthcare stocks. AbbVie (ABBV), which is a high-yield drug manufacturer, and Danaher (DHR), a diversified producer of healthcare equipment. Danaher is also the largest competitor of Thermo Fisher Scientific (NYSE:TMO<\/span>)<\/span><\/strong>, which is the star of this article.<\/span><\/p>\n

In the past few days, I made the decision to make healthcare a major part of my portfolio. I want to add at least two more stocks in the industry, as I am a big believer in the value high-quality healthcare stocks can bring to the table.<\/p>\n

Not only because of secular tailwinds but also because some come with tremendous pricing power, financial stability, and ways to let shareholders benefit from their success.<\/p>\n

In this article, we’ll discuss Thermo Fisher. Although the stock has an ultra-low yield of 0.3%, I still believe it’s a great dividend growth stock. The company is a fantastic wealth compounder thanks to innovation, anti-cyclical customers, and its ability to generate value.<\/span><\/p>\n

Hence, I will explain why I put TMO on my watchlist, despite the fact that I already own DHR. I’m likely to buy the stock for a number of portfolios that I manage as well.<\/p>\n

So, let’s dive into the details!<\/p>\n

A Quick Look Back<\/h2>\n

In my prior article, I already briefly discussed the company’s business model – especially in light of its 1Q23 earnings and funding risks related to elevated rates.<\/p>\n

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Moreover, Danaher noted some funding struggles among its biotech clients. After all, biotechnology is highly capital-intensive. Thermo Fisher didn’t say that it saw these issues. However, it mentioned that the funding environment is a factor worth monitoring.<\/em><\/p>\n<\/blockquote>\n

Since then, the stock has fallen by another 6% – despite the rotation from value to growth stocks that started in January.<\/p>\n

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Data by YCharts<\/figcaption><\/figure>\n<\/p>\n

While I will cover the business model again in this article – it’s too important to the company’s success – I will shed some additional light on its measures to grow, as this continues to be key in a challenging business environment. Not only because the company sticks to very ambitious growth targets, as reiterated at recent investment conferences, but also because of its more attractive valuation and my decision to include the stock in various portfolios that I manage.<\/p>\n

Thermo Fisher’s Superior Business Model<\/h2>\n

Healthcare is a highly complex sector. Looking at the holdings of the major healthcare ETF (XLV), we see that it consists of pharmaceuticals, healthcare equipment suppliers, biotechnology, healthcare providers, and life sciences.<\/p>\n

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SPDR – State Street<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

While every single one of these industries has fantastic companies, I like to buy suppliers. In general, I believe in the power of suppliers. It may have something to do with my background in purchasing & supply management, but I believe that buying suppliers lowers competition risk, because suppliers sell to a wide range of buyers that compete with each other.<\/p>\n

That’s where Thermo Fisher comes in. With a market cap of $201 billion, this Waltham-MA-based healthcare giant is one of the biggest healthcare suppliers in the world.<\/p>\n

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Thermo Fisher Scientific<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

The company is a world leader in serving scientific customers, with strong brands, $44 billion in revenue, and 125,000 employees. The company invests heavily in research and development and capital expenditures to ensure that it stays on top of the game.<\/p>\n

The company currently spends close to 5% of its revenues on CapEx and 3.3% of its revenues on R&D.<\/p>\n

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Data by YCharts<\/figcaption><\/figure>\n<\/p>\n

While R&D spending as a percentage of revenue is down, it needs to be said that revenue growth has been wild. Over the past ten years, revenues have grown by 240%. Net income has soared by 360%, thanks to higher margins. These numbers are wild and a sign of significant tailwinds in its industry.<\/p>\n

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Data by YCharts<\/figcaption><\/figure>\n<\/p>\n

Thermo Fisher believes that its mission is to enable customers to make the world healthier, cleaner, and safer by supporting important work in fields such as cancer research, diagnostics, and materials science.<\/p>\n

The company’s products are aimed at making that possible, with a significant portion of its portfolio serving pharmaceutical, biotech, academic, and government customers.<\/p>\n

This is done through four segments:<\/p>\n