Consistent Sales And Margin Growth Makes Thermo Fisher Scientific Stock Attractive

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we think that Thermo Fisher Scientific Inc. There is currently a better pickup than Qualcomm Inc., Both companies have a current P/S multiplier of around 6x, while TMO’s current P/EBIT is marginally higher at 23x. Do these evaluations make sense? We do not think so, and we believe that TMO should be given more importance. While both companies have seen strong growth in revenue since the lockdown has been lifted, TMO has seen more rapid and consistent sales growth than Qualcomm over the past five financial years. TMO’s revenue grew from $18.3 billion in FY16 to $32.2 billion in FY20 and is currently at a strong $39.1 billion on an LTM basis. In comparison, Qualcomm’s sales hovered around $23 billion between FY ’16 and FY ’20, before reaching $33 billion in FY ’21 (Qualcomm’s fiscal year ends in September).

Having said that, we delve deeper into the comparison, which makes Thermo Fisher Scientific a better bet than Qualcomm, even on these evaluations. Let’s step back to see a full picture of the relative valuations of both companies looking at financial position as well as detailed historical revenue growth as well as operating income and operating margin growth. our dashboard Qualcomm vs Thermo Fisher Scientific: Similar income, but Thermo Fisher Scientific is a better bet There is more detail on this. The excerpts of the analysis are summarized below.

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1. Thermo Fisher Scientific Forward on Revenue Growth

Both companies managed to see strong sales growth after the pandemic, but TMO has seen much faster and more consistent revenue growth over the years. TMO sales grew from $18.3 billion in FY16 to $39.1 billion on an LTM basis, while Qualcomm’s revenue grew from $23.6 billion in FY16 to nearly $33 billion on an LTM basis.

Furthermore, TMO has a pre-Covid annual sales growth of 11.2%, higher than Qualcomm’s 1.4%, and even during COVID the growth is 26.1%, higher than Qualcomm’s -3.1% . However, for the most recent quarter, Qualcomm saw sales growth of over 60% year over year, much higher than TMO’s 9.5%. Even on an LTM basis, Qualcomm has a sales growth of 62.9%, which is higher than TMO’s 37.1%.

Having said that, TMO’s sales growth over the years has been much more consistent than Qualcomm’s, and we believe this should be rewarded in the form of a higher valuation for TMO.

2. Qualcomm Leads On EBIT Margins, But Thermo Fisher Scientific In A Better Cash Position

Qualcomm’s P/EBIT ratio is currently around 22x, which is slightly less than TMO’s 23x. This is a bit harsh as Qualcomm’s LTM EBIT margin is 31.7%, which is higher than TMO’s 27%. Also, in terms of recent margin growth, Qualcomm is ahead with a change in margin at 11.4% versus LTM last three fiscals, which is higher than TMO’s 7.8%.

Now, looking at the cash position of both companies, TMO’s debt as a % of equity is 0%, versus Qualcomm’s 1%. However, TMO’s cash as a % of assets is much higher at 33.3% compared to Qualcomm’s 16.3%.

3. Finally, Thermo Fisher Scientific Leads in Expected Returns

Due to the high volatility in P/E and P/EBIT, using P/S as the basis, we believe TMO is the better option. According to our estimates, TMO’s LTM revenue of $39 billion is expected to grow at a CAGR of 11.3%, taking the revenue number to a three-year high of $54 billion. Assuming TMO’s P/S ratio to pull back to an average of about 5.6x, this means the market cap would grow to $302 billion, a 19% increase over three years.

In comparison, looking at historical trends, we expect Qualcomm’s sales to grow at a slower pace at a CAGR of only 1.6%, driving revenue to a little over $34 billion over three years. However, considering Qualcomm’s P/S corrected to approximately 5x the historical average, we anticipate a market cap of $175 billion for QCOM, far below today’s levels.

net of it all

TMO’s revenue is larger than Qualcomm’s, and the former has also seen faster and more consistent revenue growth over the past few years, combined with stronger EBIT margins and better cash positioning. Additionally, our comparison of post-Covid recovery above shows that TMO has seen steady growth as compared to Qualcomm. Because of this, we believe that TMO deserves a higher P/S and P/EBIT multiplier than Qualcomm, and we believe this will soon be reflected in the companies’ relative valuations. As such, we believe Thermo Fisher Scientific stock is currently a better bet than Qualcomm stock.

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