Morningstar | Healthy 2Q for Thermo Fisher; Maintaining Fair Value Estimate
Thermo Fisher Scientific reported in line second-quarter results, with organic revenue growth moderating to 5% and adjusted operating margin expanding by 40 basis points. The company slightly raised its 2019 guidance, but our revenue forecast is still within the updated range. Thus, we're maintaining our fair value estimate and narrow moat rating. The shares look slightly expensive at current levels.Sounding like a broken record, we point to yet another strong performance out of the pharma/biotech channel, once again up in double-digits. This growth is moderating, but still likely remains ahead of the company's peers. The company is still benefiting from the spending tailwind but is also gaining wallet share across the entire customer spectrum, particularly on the MS/LC side within the analytical instruments business. Other end markets are showing signs deceleration, which was largely expected. FEI growth, in particular, was fairly muted in the quarter, which shouldn't be surprising given the remarkable 2018 performance there. The academic market in North America and Europe was fairly slow in the quarter, as well.
By geographies, China delivered mid-teens growth, seemingly unaffected by negative headlines and tough comparisons. Thermo Fisher was confident in its forecast for the remainder of 2019 in China, driven primarily by the healthcare end market. The company did note some slowing in the materials and structural analysis business, which explains a slightly slower, albeit still impressive, performance in the second largest geography for the company.
Operating margin was up slightly in the quarter, with LPS' investments into pharma manufacturing capacity and foreign exchange providing a drag. Our margin and earnings forecasts are within the company's updated range.
Thermo Fisher Scientific is engaged in serving science. The company's segments include: Life Sciences Solutions, which provides reagents, instruments and consumables used in biological and medical research, discovery and production of new drugs and vaccines as well as diagnosis of disease; Analytical Instruments, which provides instruments, consumables, software and services that are used for a range of applications in the laboratory, on the production line and in the field; and Specialty Diagnostics, which provides diagnostic test kits, reagents, culture media, instruments and associated products for customers in healthcare, clinical, pharmaceutical, industrial, and food safety laboratories.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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