Credit Suisse Upgrades Thermo Fisher, Calls It Best-Of-Breed Asset

Credit Suisse has upgraded Thermo Fisher Scientific Inc TMO to Outperform from Neutral, with a price target of $620, citing it as the best-of-breed asset.

The analyst says Thermo's stock is not often cheap. Despite improved growth opportunities, its relative multiple vs. the S&P 500 has contracted below its 10-year median. The stock trades for a ~1x EBITDA premium to its Tools peer group (18.5x vs. 17.5x), considered appropriate and a good entry point. 

The analyst says the company's better position to navigate the post-pandemic demand correction than its peers, given its diversified portfolio.

The company's business is increasingly toward clinical research and contract manufacturing services.

The analyst sees strong growth prospects for its services businesses, boosted by increasing outsourced penetration, share gain opportunities, and expanded M&A runway. 

Credit Suisse says Thermo Fisher's gain during the pandemic is more verifiable due to its role in COVID testing, and it gained a share in basic lab consumables and bioprocess raw materials. 

Share gain opportunities in clinical research and contract manufacturing have become even more visible due to competitors' challenges (e.g., Syneos, Catalent), the analyst writes.

The analyst notes that several Tools companies have downwardly revised guidance, and it would not be surprising if Thermo follows suit. The demand normalization should not distract Thermo Fisher from longer-term secular growth opportunities.

Price Action: TMO shares are up 0.11% at $525.32 on the last check Thursday.

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