Thermo Fisher (TMO)

Life sciences company Thermo Fisher (NYSE:TMO) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 4.9% year on year to $11.12 billion. Its non-GAAP profit of $5.79 per share was 5.3% above analysts’ consensus estimates.

Company Overview

With over 14,000 sales personnel and a portfolio spanning more than 2,500 technology manufacturers, Thermo Fisher Scientific (NYSE:TMO) provides scientific equipment, reagents, consumables, software, and laboratory services to pharmaceutical, biotech, academic, and healthcare customers worldwide.

The life sciences subsector specializing in research tools and consumables enables scientific discoveries across academia, biotechnology, and pharmaceuticals. These firms supply a wide range of essential laboratory products, ensuring a recurring revenue stream through repeat purchases and replenishment. Their business models benefit from strong customer loyalty, a diversified product portfolio, and exposure to both the research and clinical markets. However, challenges include high R&D investment to maintain technological leadership, pricing pressures from budget-conscious institutions, and vulnerability to fluctuations in research funding cycles. Looking ahead, this subsector stands to benefit from tailwinds such as growing demand for tools supporting emerging fields like synthetic biology and personalized medicine. There is also a rise in automation and AI-driven solutions in laboratories that could create new opportunities to sell tools and consumables. Nevertheless, headwinds exist. These companies tend to be at the mercy of supply chain disruptions and sensitivity to macroeconomic conditions that impact funding for research initiatives.

Thermo Fisher Scientific competes with other life sciences and laboratory equipment providers including Danaher Corporation (NYSE:DHR), Agilent Technologies (NYSE:A), PerkinElmer (NYSE:PKI), and Becton, Dickinson and Company (NYSE:BDX), as well as specialized competitors in specific market segments.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $43.74 billion in revenue over the past 12 months, Thermo Fisher boasts impressive economies of scale. It may not be as large as heavyweights such as UnitedHealth Group and The Cigna Group from a topline perspective, but its heft is still an important advantage in a healthcare industry that is heavily regulated, complex, and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, Thermo Fisher’s 8.9% annualized revenue growth over the last five years was decent. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Thermo Fisher’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Thermo Fisher’s organic revenue was flat. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Thermo Fisher reported modest year-on-year revenue growth of 4.9% but beat Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Thermo Fisher has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average operating margin of 19.4%.

Looking at the trend in its profitability, Thermo Fisher’s operating margin decreased by 9.9 percentage points over the last five years, but it rose by 1.4 percentage points on a two-year basis. Still, shareholders will want to see Thermo Fisher become more profitable in the future.

In Q3, Thermo Fisher generated an operating margin profit margin of 17.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Thermo Fisher’s EPS grew at a decent 6.9% compounded annual growth rate over the last five years. However, this performance was lower than its 8.9% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Thermo Fisher’s earnings to better understand the drivers of its performance. As we mentioned earlier, Thermo Fisher’s operating margin was flat this quarter but declined by 9.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Thermo Fisher reported adjusted EPS of $5.79, up from $5.28 in the same quarter last year. This print beat analysts’ estimates by 5.3%. Over the next 12 months, Wall Street expects Thermo Fisher’s full-year EPS of $22.40 to grow 7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Thermo Fisher has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 16% over the last five years, quite impressive for a healthcare business.

Taking a step back, we can see that Thermo Fisher’s margin dropped by 6.3 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Thermo Fisher’s free cash flow clocked in at $1.84 billion in Q3, equivalent to a 16.5% margin. The company’s cash profitability regressed as it was 1.3 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Thermo Fisher hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 11.1%, higher than most healthcare businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Thermo Fisher’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Thermo Fisher reported $3.55 billion of cash and $35.68 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $10.8 billion of EBITDA over the last 12 months, we view Thermo Fisher’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $184 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Thermo Fisher beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 3.1% to $575 immediately following the results.

Updated: December 4, 2025 at 10:54 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Thermo Fisher.

Thermo Fisher has some positive attributes, but it isn’t one of our picks. To kick things off, its revenue growth was decent over the last five years. And while Thermo Fisher’s declining adjusted operating margin shows the business has become less efficient, its scale makes it a trusted partner with negotiating leverage.

Thermo Fisher’s P/E ratio based on the next 12 months is 24.1x. Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $619.96 on the company (compared to the current share price of $575).