Is Thermo Fisher Scientific Inc. (NYSE:TMO) overvalued at 39.08x Price To Earnings?

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Thermo Fisher Scientific Inc. (NYSE:TMO) is currently trading at $481.99, at approximately 99.4% of its 52-week high of $485.00. With the stock price up 62.7% in the last year, investors are worried that the company is getting too expensive. So, is Thermo Fisher Scientific Inc. overvalued? In this article, we’ll discuss Thermo Fisher Scientific Inc.’s valuation using different valuation models.

Historical Valuation

One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.

Considering Thermo Fisher Scientific Inc.’s latest twelve months revenue/share of $72.04 and using the company’s 5-year average price to sales of 4.15x as a benchmark, we have a fair value of $298.86, which is -38.0% lower than the current price.

With no surprise, we can see that Thermo Fisher Scientific Inc.’s price to sales of 6.7x is much higher than its 5-year average of 4.1x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.

Source: Finbox Chart Engine

Absolute Valuation: Thermo Fisher Scientific Inc. DCF Analysis

Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.

So, let’s analyze Thermo Fisher Scientific Inc. with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 6.1%, an average EBITDA margin forecast of 29.0%, a discount rate of 9.0%, and a terminal EBITDA multiple of 22.6x, we get a fair value of $442.3.

So, Is Thermo Fisher Scientific Inc. Overvalued?

Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.

The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.

According to the estimate, Thermo Fisher Scientific Inc.’s fair value is $380.75, representing a -21.0% downside from the current price. Below are the fair value estimates for each model.

Source: Finbox Fair Value Estimates

Company’s Profile: Thermo Fisher Scientific Inc.

Thermo Fisher Scientific Inc. provides analytical and other instruments, laboratory equipment, software, consumables, reagents, instrument systems, chemicals, supplies, and services worldwide.

The company’s Life Sciences Solutions segment offers reagents, instruments, and consumables for biological and medical research, discovery and production of new drugs and vaccines, and diagnosis of diseases to pharmaceutical, biotechnology, agricultural, clinical, academic, and government markets.

Its Analytical Instruments segment provides instruments, consumables, software, and services for use in laboratory, on production line, and in field for pharmaceutical, biotechnology, academic, government, environmental, and research and industrial markets, as well as clinical laboratories.

The company’s Specialty Diagnostics segment offers liquid, ready-to-use, and lyophilized immunodiagnostic reagent kits, as well as calibrators, controls, and calibration verification fluids; blood-test systems and antibody tests; dehydrated and prepared culture media, collection and transport systems, instrumentation, and consumables; cancer diagnosis and medical research products; human leukocyte antigen typing and testing for organ transplant market; and healthcare products.

Its Laboratory Products and Services segment provides laboratory refrigerators and freezers, and ultralow-temperature freezers and cryopreservation storage tanks; temperature control, sample preparation and preservation, centrifugation, and biological safety cabinet products; water analysis instruments; laboratory plastics and chemicals; and pharma services.

It has collaboration with WuXi Diagnostics and Mayo Clinic to develop antibodies tests; a strategic collaboration with Schrödinger, Inc. to expand structure-based drug discovery to novel targets using Cryo-EM; and an agreement with Daiichi Sankyo to co-develop a companion diagnostic. The company was incorporated in 1956 and is headquartered in Waltham, Massachusetts.

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