Thermo Fisher Scientific Inc. (NYSE: TMO). The company is meeting surging demand as customers accelerate efforts to manufacture COVID-19 test kits and develop vaccines and treatments. TMO is also investing in future growth through acquisitions, market expansion efforts, and new product launches. Thermo has deep resources to address increased customer needs during the pandemic, which should enable it to gain market share.
Adjusted EPS rose 91% to $5.63 and beat the consensus estimate by $1.33. GAAP up from $760 million or $1.88 per share. Revenue grew 36% to $8.52 billion. Excluding the impact of foreign exchange and acquisitions, organic revenue grew 34%.
While the company’s response to the COVID-19 pandemic was a significant driver in 3Q, its base business – providing tools and solutions for the biotech and life science industries – also returned to growth.
As biotech customers returned to their labs and research activities resumed, Thermo picked up where it left off in delivering instruments and reagents to these customers.
As for its pandemic response, Thermo saw strong demand for proprietary COVID-19 diagnostic test kits, reagents used for laboratory-developed tests, and materials for test sample collection products. Thermo also added capacity to support the development of new coronavirus therapies and vaccines. For example, it invested in capacity to increase the manufacturing of enzymes and nucleotides used in vaccines. It is also working with government agencies in the U.S. and overseas both in responding to the current pandemic and in preparing for future health emergencies. Its government-funded projects include funding from BARDA to increase capacity in the U.S. On its own, Thermo is investing more than $700 million to expand its worldwide capacity amid increased COVID-related demand. The company is also partnering with the Economic Development Board of Singapore to expand its sterile fill finish capacity by building its first facility. When it becomes operational in 2022, the Singapore facility will have a high-speed filling line able to produce live viruses for the Singapore market and other Asia-Pacific markets.
Activities to support the development of vaccines and therapies boosted revenue in the Life Science Solutions segment (+101%) and the Specialty Diagnostics segment (+63%).
In all, the company generated COVID-19-related revenue of $2 billion in 3Q20, boosting growth by 31% (compared to $1.3 billion in 2Q20 with a 21% contribution to growth). In addition to the COVID-related revenue, revenue in the base business rose 3% after falling 10% in the prior quarter. The improvement was driven by increased customer activity and solid commercial execution.
The revenue growth also contributed to higher margins. The adjusted 3Q gross margin was 52.3%, up 620 basis points.
Outside of commercial activities, during the quarter Thermo launched the ‘Just Project’ to benefit historically black colleges and universities. It donated more than $25 million of COVID-19 diagnostic test kits, instruments, supplies and technical assistance to HBCU institutions to enable the safe return to campuses of students and staff. It also established a $20 million Foundation of Science to support STEM education in underserved communities.
EARNINGS & GROWTH ANALYSIS
Thermo has reinstated its guidance for 2020. With the revenue tailwinds from its COVID-19 response and the reopening of academic and government research labs, the company presented an upbeat outlook for 2020. It expects full-year revenue to grow 20% to $30.5 billion and adjusted EPS to grow 48% to $18.27.
FINANCIAL STRENGTH & DIVIDEND
in 2020 the company expects to spend $1.5 billion on capital expenditures, including $400 million to support its COVID-19 response.
In terms of capital deployment, the company completed a $1.5 billion share buyback program in 1Q20 and is not expected to make additional buybacks in 4Q.
Thermo Fisher manufactures scientific instruments, consumables, and chemicals. It provides analytical instruments, lab equipment, software reagents and supplies to pharmaceutical companies, hospitals, clinical diagnostic labs, universities, research institutions and government agencies.
TMO trades at 24.0-times our 2021 and in overseas markets, including China, and record of successful acquisitions. TMO is also benefiting from tailwinds as it supplies instruments, reagents and other consumables to makers of COVID-19 test kits and developers of vaccines and treatments for the coronavirus. Looking ahead, we expect TMO to continue to benefit from the launch of new products and the expansion of its production and service capabilities.
On November 4, BUY-rated TMO closed at $510.97, up $19.47.