Thermo Fisher (TMO)

Life sciences company Thermo Fisher (NYSE:TMO) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales were flat year on year at $10.36 billion. Its non-GAAP profit of $5.15 per share was 0.9% 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 $42.9 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.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Thermo Fisher grew its sales at a decent 10.8% compounded annual growth rate. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Thermo Fisher’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 1% 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 averaged 1.7% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Thermo Fisher’s $10.36 billion of revenue was flat year on year but beat Wall Street’s estimates by 1.3%.

Looking ahead, sell-side analysts expect revenue to grow 3.6% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

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 20%.

Analyzing the trend in its profitability, Thermo Fisher’s operating margin decreased by 10.5 percentage points over the last five years. A silver lining is that on a two-year basis, its margin has stabilized. Still, shareholders will want to see Thermo Fisher become more profitable in the future.

This quarter, Thermo Fisher generated an operating profit margin of 16.6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Thermo Fisher’s EPS grew at a remarkable 11.9% compounded annual growth rate over the last five years, higher than its 10.8% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

Diving into Thermo Fisher’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Thermo Fisher has repurchased its stock, shrinking its share count by 5.2%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q1, Thermo Fisher reported EPS at $5.15, up from $5.11 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Thermo Fisher’s full-year EPS of $21.90 to grow 8%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

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 17% 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 6.8 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 $361 million in Q1, equivalent to a 3.5% margin. The company’s cash profitability regressed as it was 5.3 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? Enter ROIC, a metric showing how much operating profit a company generates relative 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 12.3%, 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 $5.95 billion of cash and $34.19 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 $10.72 billion of EBITDA over the last 12 months, we view Thermo Fisher’s 2.6× net-debt-to-EBITDA ratio as safe. We also see its $128 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 good to see Thermo Fisher narrowly top analysts’ organic revenue expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates, leading to an EPS beat. Zooming out, we think this was a decent quarter. The stock traded up 1.6% to $441 immediately after reporting.

Updated: July 10, 2025 at 11:36 PM EDT

Before deciding whether to buy Thermo Fisher or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

There are some bright spots in Thermo Fisher’s fundamentals, but its business quality ultimately falls short. First off, its revenue growth was good 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 18.2x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $551.82 on the company (compared to the current share price of $431.99).