Although analysts at Credit Suisse see risks to the stock as covid-19 testing reduces with the distribution of the vaccine, the report said there are other potential offsets. 2020 was the year of the healthcare and pharmaceutical sector when it came to stock market investment. Global Brokerage and research firm Credit Suisse, in a recent report, highlighted that the price-performance of healthcare subsectors such as clinical laboratories, managed care, medical devices, and contract research organizations outperformed the S&P 500 index. The brokerage firm said that it selectively views further upside potential for stocks that have demonstrated ability to enhance market positioning throughout the pandemic with strategic innovation and capacity investments. With this, Credit Suisse has upgraded Thermo Fisher to an ‘outperform’ rating.
Upgrade to ‘Outperform’
The report said that Thermo Fisher (TMO) is highly levered to healthy industry fundamentals, as well as drivers in rising biopharma demand, increased exposure to faster-growing services markets, innovation, geographic expansion, and improving operational efficiency. Credit Suisse had initiated the coverage of the stock less than a year ago with a ‘Neutral’ rating. “Since that time, the market has evolved meaningfully with the COVID pandemic, driving some unexpected catalysts and opportunities for the Life Science group broadly speaking. TMO has admittedly far exceeded expectations in the current environment, with the company recently increasing its 4Q guide meaningfully, now calling for +40% organic growth,” they added.
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Although analysts at Credit Suisse see risks to the stock as covid-19 testing reduces with the distribution of the vaccine, the report said there are other potential offsets. These include significant 2020 PCR instrument placements, COVID vaccine/therapy development and commercialization opportunities along with expanded capacity enabled by COVID-driven investments. “More specifically, as it relates to COVID vaccines and therapies, TMO is working on 250+ projects, representing an opportunity now estimated to be north of its prior expectation of $1 billion in revenue,” Credit Suisse said.
Valuation below peers
In terms of valuation, the stock trades at 18.6x 2022 EV/EBITDA, below the Life Science Tools peer average (20.9x), albeit still above its historical five-year average of 17.0x. However, the brokerage firm believes that valuations do not adequately reflect its higher organic revenue growth run-rate and strengthening margin profile, particularly as it enhances its market-leading positioning with strategic investments across the biopharma arena.
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Target price
The revised target price for Thermo Fisher has been set at $556 per share. Currently, the stock trades at $503 apiece. In its Blue Sky scenario, Credit Suisse does see the potential for the stock zooming as high as $667 per share. On the other hand, if things go south and R&D slows down along with a stringent regulatory environment, the stock could tumble to $445.
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