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Needham Tones Down Bullish Stance On Thermo Fisher After 'Meaningful' Gains

Jayson Derrick

Shares of life science company Thermo Fisher Scientific Inc. (NYSE: TMO) are higher by more than 30% since the end of 2018 and the "meaningful" valuation expansion prompted Needham to tone down its bullish stance on the stock.

The Analyst

Needham's Stephen Unger downgraded Thermo Fisher Scientific from Strong Buy to Buy with an unchanged $315 price target.

The Thesis

Thermo Fisher stock's multiple has now expanded to the high end of the research firm's trading range multiple of 17.5 times to 22.5 times.

Despite a downgrade, the bullish stance on Thermo Fisher's stock remains unchanged and based on expectations for above average revenue growth over the coming decade, the analyst wrote. The company's acquisition of Patheon expanded Thermo Fisher's total addressable market opportunity to $160 billion of which it holds just a 15% market share.

In addition, the company's exposure to Pharma & Biotech end-markets (39% of revenue over the past year) and sales in China (11% of sales) represents important drivers of growth for the Life Science Tools business, the analyst wrote. Encouragingly, the company has shown expanding market share in the important segments.

The research firm's unchanged $315 price target is based on a multiple of 22.5 times EPS estimate of $14 for the one-year period ending May 2021.

Price Action

Shares of Thermo Fisher Scientific were trading higher by 1% at $285.95 Tuesday afternoon.

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