More Momentum Seen for Thermo Fisher

Although Thermo Fisher Scientific's (TMO) stock is up 8% year-to-date, at least one analyst contends it has more room to run.

KeyBanc Capital Markets analyst Matthew Mishan Mishan upped his price target to $167 from $154 and reiterated his overweight rating on the stock, which continues to be among his top picks among makers of life science tools.

In early afternoon trading on Wednesday, shares of Thermo Fisher were changing hands at $153.39, up 0.5%.

A big reason is that demand for Thermo Fisher's products within the pharmaceutical and biotech industries has been stronger than feared, Mishan said.

"I think going into the year, some people were nervous about the strength of the biotech pharma end-market," Mishan said in a phone interview on Wednesday. That's because the funding environment around biotech IPOs and venture capital had tightened toward the end of last year, he noted. Also, there were some regulatory concerns over pricing, he said.

The first quarter results of companies such as Thermo Fisher "alleviated those concerns," he said.

Waltham, Mass.-based Thermo Fisher in April reported Q1 results that exceeded top and bottom line expectations. The company had adjusted EPS of $1.80, beating analysts' expectations of $1.74 per share. Revenue for the quarter came in at nearly $4.3 billion, north of an anticipated $4.1 billion.

Mishan also noted that at Thermo Fisher's analyst meeting last month, the company notched up its organic growth outlook through 2019 to 4% to 6% from 4% to 5%.

In addition, he pointed to Thermo Fisher's $4.2 billion deal, announced May 27, to buy microscopy specialist FEI (FEIC) and the $1.3 billion acquisition of DNA testing company Affymetrix Inc., in a transaction completed in March.

"You see them putting money work,"  Mishan said. "You feel good about the overall organic and inorganic growth."

The FEI deal is expected to close by early next year. Mishan has factored the incremental accretion into the price target.

In his note on Wednesday, Mishan also pointed out that while Thermo Fisher is mainly healthcare-focused, "it has 20-25% exposure in industrial/applied end markets and can meet a minimum threshold to be considered in an industrial basket for some portfolio managers."

TheStreet's Jack Mohr, research director for the Action Alerts PLUS portfolio, which owns Thermo Fisher, said in an e-mail that Thermo Fisher's acquisition of FEI is "underappreciated but more importantly,TMO has the potential to fit within the investment mandate of Multi-Industrial Portfolio Managers (which is a massive opportunity)."

"TMO's diversified end-market, geographic and cross-sector exposure, coupled with its visible, enviable high-single digit growth (on top of continued margin expansion) makes it a fit across a wide net of investor playbooks including healthcare (pharma/biotech/medical devices/diagnostics) and applied industrials," Mohr added.

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