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Thermo Fisher Scientific Trades at Stable Valuation Multiples

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Jan. 13 2016, Updated 12:06 p.m. ET

Valuation multiples

After the release of its 3Q15 earnings results on October 21, 2015, Thermo Fisher Scientific (TMO) traded at PE (price-to-earnings) multiples in the range of 16.7x–17.0x. Currently, Thermo Fisher Scientific is trading at PE multiples slightly lower than those of peers Becton, Dickinson and Company (BDX), Abbott (ABT), and Agilent Technologies (A).

Thermo Fisher Scientific has been trading at strong and stable valuations, driven by continued growth and profitability with a diversified product portfolio, expanding profit margins, and strong investor sentiments. As part of the growth strategy, the company has undertaken various strategic acquisitions over the past few years, including Alfa Aeser, Advanced Scientifics, and Life Technologies, which have accelerated significant product developments and market expansion.

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Thermo Fisher’s fundamentals

Thermo Fisher Scientific acquired Life Technologies in 2014, which led to the entry of the company into the lucrative market segment of genomics and genetic testing. The acquisition led to the establishment of a new business segment in the company, Life Sciences Solutions. In 2015, Thermo Fisher launched new products under the Life Sciences Solutions segment, namely the Ion S5 and Ion S5 XL sequencing systems.

Thermo Fisher’s acquisition of Life Technologies is expected to generate cost synergies of more than $250 million by the end of fiscal 2018. Some of the other recent acquisitions expected to reduce operating expenses and enhance margins include that of Advanced Scientific, which will help strengthen the bioproduction segment, and that of Alfa Aeser, a global manufacturer of reagents and materials, which will help strengthen Thermo Fisher Scientific’s chemical business.

Thermo Fisher Scientific has consistently provided value to its shareholders, mainly through share buybacks and quarterly dividends over the years. The company has announced a quarterly cash dividend of $0.15 per share, to be paid on January 15, 2016, and is expected to deploy capital to the tune of $15 billion through 2018. The iShares Core S&P 500 ETF (IVV) invests 0.31% of its portfolio in Thermo Fisher Scientific.

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