Thermo Fisher Scientific produces instruments, equipment, software, services and medical consumables that help scientists accelerate life sciences research, improve patient diagnostics, deliver medicines to market and increase laboratory productivity. From lab plastic ware to mass spectrometry, the company’s products are used across pharmaceutical, biotechnology, academic, government, environmental and industrial research, as well as the clinical laboratory.
We have a position in Thermo Fisher. The diversified nature of the company’s product portfolio is attractive, given no single product or end-market materially impact its performance. In addition, the company targets an organic revenue growth rate of 4-6% and an earnings per share of about 12-15% per annum, reflecting its cost-cutting culture and process improvements.
Our proprietary Alpha Model also views Thermo Fisher as very attractive. That’s because it boasts strong and stable growth as well as good and improving margins. What’s more, it is attractively valued. Indeed, it ranks ahead of its peers in the six factors – valuation, corporate behaviour, growth, profitability, capital structure and sentiment – used to generate our Alpha Score. It is broadly neutral on corporate behaviour. Understandably, sentiment towards Thermo Fisher is strong.
A healthier, cleaner and safer world
Encouragingly, the company also generates a significant portion of its revenue through activities that have a positive impact on society, such as access to healthcare or sustainable solutions that help customers reduce its environmental footprint. It offers 45 ‘greener’ products, which strive to provide customers with alternatives that are less hazardous, more energy efficient and reduce waste.
Thermo Fisher is also contributing to the UN SDGs. Its diagnostic tools are helping achieve the SDGs by diagnosing some of the world’s most infectious diseases. In addition, the company produces environmental tools and IT systems, such as soil analysers that help produce healthier and safer crops, water analysers that help deliver safe drinking water, and air quality measurement tools that help track pollutants and assist industrial manufacturing monitor compliance.
Scalable solutions to real-world problems
In 2017, Thermo Fisher formed a partnership with Mars Inc. to tackle aflatoxins – naturally occurring poisons that contaminate an estimated 25% of food crops and 4.5bn people worldwide.
Aflatoxins originate in certain species of fungi that grow on feed and food, such as groundnuts, peanuts, spices and corn. They are near-impossible to destroy. They are considered a Class 1 carcinogen by the International Agency for Research on Cancer.
The project aims to identify a protein to reduce the impact of the aflatoxin in food. Importantly, this have a positive impact in developing countries, where the amount of aflatoxins in food products is not well regulated.
Engaging on ESG risks
Interestingly, Thermo Fisher is not highlighted as a clear leader by ESG data providers. That’s because many data providers apply the same level of scrutiny to healthcare providers as they do to pharmaceutical companies – a highly regulated industry. However, the diverse nature of the business means it is exposed to lower levels of risk. That said, it does have some weaknesses – or at least areas of risk that could be better addressed – particularly around disclosure.
We are engaging with the company. We are encouraged by the strength of its governance – notably, the appointment of an independent chair, which serves to highlight its positive corporate mind-set. In addition, Thermo Fisher has developed policies and systems to address some environmental and social issues. Nevertheless, we are encouraging the company to extend its programmes and policies to better demonstrate key risks, such as business ethics.