Understanding Thermo Fisher Scientific’s Financial Model




Thermo Fisher Scientific (TMO) aims to deliver strong financial performances in the next three years through operational excellence and strong capital deployment strategies. It aims to deliver adjusted EPS (earnings per share) in the range of $11.3–$12.2 by 2019. These estimates represent a three-year CAGR (compound annual growth rate) of 12%–15%.

Investors can participate in the company’s growth by investing in the iShares US Medical Devices ETF (IHI). IHI has approximately 7.7% of its total holdings in TMO. Thermo Fisher’s peers Abbott Laboratories (ABT), Baxter (BAX), and Becton Dickinson (BDX) account for around 8.1%, 4.4%, and 5.6%, respectively, of IHI’s total holdings.

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Operational performance

With several strategic acquisitions, TMO has expanded its product portfolio. Moreover, the company has launched a number of new products and has a strong product pipeline, which is expected to generate strong revenues and improve the company’s earnings and profitability.

Thermo Fisher’s organic revenues growth is estimated to be in the range of 4%–6%, amounting to $20.2 billion–$21.2 billion by fiscal 2019. The adjusted operating income is expected to grow at a three-year CAGR of 6%–9%. The company’s adjusted return on invested capital is expected to grow from 10% in 2016 to 12%–13% by 2019.

Capital deployment

Thermo Fisher Scientific has always focused on creating shareholder value through effective capital deployment. The company aims to deploy approximately $17 billion by fiscal 2019. Around 60%–75% of that capital is expected to be invested in strategic mergers and acquisitions and the rest on share buybacks and dividend payout. In terms of leverage, the company aims to maintain a 2.75x leverage at the end of each year in the financial model for the period 2017–2019.

In the next and final part, we’ll discuss the commercial capabilities driving the company’s growth.


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