When investors think of winners from the novel coronavirus pandemic, they think of companies working on vaccines. They think of online shopping and work from home applications. But the biggest winner may be Thermo Fisher (NYSE:TMO) stock.
The distributor of scientific tests and equipment, Thermo Fisher blew the doors off with its September quarter earnings, revenue growing 36% and adjusted earnings per share rising 91% from a year earlier. The numbers beat estimates by a whopping 45%.
So far in 2020 the shares are up 50%. Thermo Fisher enters trading today at $489. That’s a market cap of $191 billion, with yearly revenue now expected at $29 billion. Just by way of comparison, the company’s value is now just $4 billion short of AT&T (NYSE:T).
The Covid Essentials
What has driven 2020 results have been systems for virus testing and drug manufacturing.
In October the company rolled out two new tests for Covid-19 antibodies. This includes both the collection of samples and the actual testing, as well as personal protection equipment (PPE) for those working on it.
The company also announced a new cell processing system, which will speed manufacturing and reduce drug makers’ capital costs. The CTS Rotea system separates processes that take time from those that run quickly, but it’s still sterile, closed and modular.
Thermo Fisher got $2 billion in revenue during the quarter just from Covid-19. But there is more to come since the entire biotech industry is focused on cell-level chemical discovery and treatment. Major drug companies are separating out their biotech operations for growth, and the entire biotech center is exploding with genetic-based discoveries and therapies.
Not All Good News
Not all the news from Thermo Fisher this year has been good.
The company had a deal to buy Qiagen (NYSE:QGEN), a European diagnostics manufacturer, for $11.5 billion in March. That deal collapsed despite Thermo Fisher offering an extra billion dollars in August. Qiagen has since seen 26% growth in sales during the third quarter.
Thermo Fisher’s TaqPath testing kit, released for Covid-19 in March, was also flagged for inaccuracies by the Food and Drug Administration. The company responded with new instructions and software.
The Catalyst Was Life
The catalyst for Thermo Fisher’s growth this decade was its 2014 acquisition of Life Technologies for $13.6 billion. Marc Casper, who has been CEO since 2009, built a new Life Sciences Solutions division around it, under a former Life executive.
The Life brand was retired in 2015, after a dispute with an Indian company but Invitrogen, the company’s original brand, was revived. Life Sciences is now a huge part of the business, with much of the rest producing equipment or products that feed it.
Despite Thermo Fisher’s rising valuation it’s still beloved by analysts, with 11 of 13 saying buy it and none saying sell. Their average price target is $512, which is still above its current price. The forecast for fourth quarter revenue is now nearly $9 billion, with and expected earnings of $8.53 per share.
The Bottom Line
Thermo Fisher isn’t just a Covid-19 story.
The growth of the entire biotech sector will depend heavily on the equipment, test kits, and manufacturing technologies Thermo Fisher brings to the party.
While health reform may slow earnings growth for drug makers, it’s unlikely to have any impact on drug manufacturing. That means Thermo Fisher is a stock you can buy confidently with a long-term time horizon. DNA is becoming a programming language and this company is going to be at the center of it.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn.
